Can this man save Wall Street? page 4
It's important to know this: BlackRock is not the only firm out there that can analyze risk. There are plenty of others with their own models and businesses aimed at helping troubled institutions of the world, among them Goldman Sachs. The trouble is, many banks don't want competitors to see their books.
Here is BlackRock's edge: It's not an investment bank and it does not trade for itself, so it does not compete with its own clients. And while there are other independent managers that provide risk-assessment services, none of them analyzes as broad a range of securities as BlackRock.
Pimco, the large bond house, provides analytics on, say, collateralized debt obligations but not on whole loans. Of course, BlackRock does not win all the time. And on Oct. 14, Pimco got an assignment to manage a commercial paper fund that the Federal Reserve is creating to help prop up that market.
To a conspiracy theorist, BlackRock might seem to have more than just an edge; its ability to provide analysis for rival financial institutions could create the appearance of a conflict of interest. At times it can seem as if BlackRock is working for two parties in the same transaction.
Last March, as Bear Stearns was collapsing, J.P. Morgan Chase hired BlackRock on Saturday the 15th to analyze Bear Stearns's books, so J.P. Morgan could figure out what price to pay for Bear Stearns. Then the Federal Reserve of New York hired BlackRock on Sunday the 16th to manage a portfolio of toxic assets that J.P. Morgan did not want (and the government had agreed to purchase to facilitate J.P. Morgan's acquisition of Bear Stearns).
BlackRock insists that it will not share information among its clients. Executives there routinely sign confidentiality agreements, and the company is audited by clients and regulators. When the New York Fed wanted to hire BlackRock to manage the Bear Stearns portfolio, J.P. Morgan had to give BlackRock permission.
"We've built this business on strict confidentiality," says Fink. "If there is any hint that we are not a 100% fiduciary, then our whole business model breaks down."
After Fink landed in Singapore on Monday, Sept. 15, the world - or at least Wall Street - was in upheaval. It took him 27 sleepless hours to get home. He couldn't get a flight back to New York that morning, so he chartered a private plane to Dubai. He talked on the phone to clients, government officials, and board members most of the way.
Even though Fink had built BlackRock to be able to withstand market upheavals, his firm was in the throes too. Over the weekend Bank of America (BAC, Fortune 500) had snapped up Merrill Lynch, which owned 49% of BlackRock. For most CEOs, the prospect of a new owner would be disorienting. But not for Fink.
Three weeks earlier the BlackRock chief had been in Aspen having lunch with Ken Lewis, CEO and chairman of BofA. On that day the two men had been casually throwing out ideas for investment banks that Lewis could buy. One that came up was Merrill Lynch. Fink thought it was an interesting idea but quickly forgot about it.
So, on the plane from Dubai, he brought up that fateful lunch when Lewis, his new owner, called to discuss the events of the day. "I said, 'Ken, I never dreamed it would be three weeks,'" remembers Fink.