starry messenger
04-01-2010, 02:06 PM
He's a new one for me:
Larry Fink’s $12 Trillion Shadow
Though few Americans know his name, Larry Fink may be the most powerful man in the post-bailout economy. His giant BlackRock money-management firm controls or monitors more than $12 trillion worldwide—including the balance sheets of Fannie Mae and Freddie Mac, and the toxic A.I.G. and Bear Stearns assets taken over by the U.S. government last year. How did Fink rebound from a humiliating failure to become the financial fulcrum of Washington and Wall Street? Through a series of interviews, the author probes his role in the crisis, his unique risk-assessment system, and the growing concern he inspires.
...
“The Interest of the American Taxpayer”
Ten months later, on the verge of collapse, Merrill Lynch was sold to Bank of America and, soon after that, Thain was pushed out. By then, Fink was more powerful than ever. In March 2008, during the frantic weekend when Bear Stearns crumbled, he was on everybody’s speed dial. On the Saturday morning that J. P. Morgan called its top executives in to the office to consider buying the moribund investment bank, Jamie Dimon hired BlackRock to value Bear Stearns’s assets. The next morning, after Dimon had decided he couldn’t buy Bear Stearns without government support, Geithner, then chairman of the New York Fed, called Fink personally for help in managing the $30 billion of toxic assets that the Fed took over. The work at Bear Stearns was particularly brutal, says Charles Hallac, a senior BlackRock executive: “People were throwing things. They were angry. They didn’t want to help. It was a hostile environment.” In June, after a call from Fink, A.I.G.’s new C.E.O., Robert Willumstad, hired BlackRock to evaluate the ailing insurer’s $77 billion credit-default-swap portfolio. It was a job that would lead to others when the market came crashing down six weeks later.
BlackRock owns no private jets, so Fink was on a commercial flight to Singapore the weekend when Lehman Brothers declared bankruptcy. He was “shocked” when he heard the news and flew back the next day. “I felt like Charlton Heston in Planet of the Apes. I came back and the whole world had changed,” he says. During the next 10 weeks, he would be on the phone to government officials several times a day—logging at least 21 calls with Geithner alone. He also spoke frequently to Paulson, at Treasury, helping to advise on the structuring of tarp, and to his number two, Ken Wilson—frantically calling him at around 6:30 a.m. in the middle of September. “The shit is hitting the fan. Ken, you’ve got to do something,” Fink said of the massive run on the country’s commercial money-market funds that had begun. The funds, including BlackRock’s, were hemorrhaging billions, and Fink told Wilson—who in January joined BlackRock as a vice-chairman—that the government needed to step in and guarantee them before the credit market collapsed, which the Treasury Department did within hours of Fink’s call.
When A.I.G. was bailed out by the New York Fed, that same week, BlackRock was again brought into the company—this time to evaluate and advise the government on what to do with the $100 billion of A.I.G. assets, including the now infamous credit-default-swap portfolio that the Fed had taken over. For several months, BlackRock would have two teams working inside A.I.G.—one working for the company’s management, the other for the Fed. It was a situation so rife with potential conflicts of interest, says Charles Hallac, that for a while neither team was told about the other. By then, BlackRock had already been hired to monitor the troubled portfolios of Fannie Mae and Freddie Mac. In December 2008, BlackRock would get yet another contract from the New York Fed, this time to value $301 billion of Citigroup’s loans and securities, most of which the U.S. government guaranteed against losses as part of its bailout of the giant bank.
The waterfall of government contracts attracted attention almost immediately. But when asked by members of Congress to explain what BlackRock was being paid and why it was selected without any competitive bidding, Fed officials, and Geithner in particular, revealed virtually nothing. Geithner said that there had been no time to solicit bids from other companies and that BlackRock had been chosen because “the interest of the American taxpayer would be best served.” When Senators Max Baucus and Charles Grassley asked to see BlackRock’s contracts, Geithner responded with a letter telling them they were welcome to do so—if they were willing to come to New York to view them in private. When pressed both by members of Congress and by the media for details about BlackRock’s fees, the Fed refused, claiming that BlackRock insisted they remain confidential because it had given the government a discount. But BlackRock claims this was not the case. “We’ve encouraged the Fed to make them public, from the beginning,” says Hallac.
Under pressure, the Fed eventually did release BlackRock’s contracts. Because they are based on an extremely complex payment schedule, it is difficult to gauge exactly how much BlackRock is making, but it appears to be in the neighborhood of $200 million for the first three years of work on the A.I.G. and Bear Stearns portfolios. For two months’ work on the Citigroup portfolio, the firm made $12 million, according to its contract with the Fed—although BlackRock says it worked for two additional months for free. BlackRock does not disclose the fees it charges its other clients, so it’s impossible to know if the U.S. taxpayer is, as Geithner claimed, getting a discount. But, some bankers say, the fees are inconsequential. “Larry would have taken those contracts for nothing,” says one financier. “It’s about the brand, the stature and the new business that flows from that. You couldn’t put a price on how valuable those contracts are.”
In the Traffic
There is little doubt among the financial establishment in Washington and on Wall Street that BlackRock was the best choice to handle the government’s problems. But the firm also benefited from a conspicuous lack of competitors. Some Wall Street banks—most notably Goldman Sachs—had the capacity to do these jobs, but there was no way, says Ken Wilson, that they would have been awarded so many contracts. A former Goldman banker himself, like Paulson, Wilson says that neither the Fed nor the Treasury could have awarded numerous government contracts to firms that were taking tarp money, or to one where so many top Treasury officials had recently worked. While there were other large money managers—including Western Asset Management Company and Pacific Investment Management Company—that could have handled some of the government’s work, they did not have as wide a range of expertise as BlackRock.
That Larry Fink was “in the traffic”—that he had long-standing relationships with all the players involved—was important but, some say, not the key issue. What is more significant, they contend, is the fact that, in a crisis of the magnitude of the 2008 meltdown, there were so many players who helped to create the mess—from banks and regulators to mortgage brokers and homeowners—but only a few with the ability to help clean it up.
As BlackRock has become perhaps too big to fail, Larry Fink’s power in the world financial markets has become, to many, the more critical question. With the trillions of dollars that run through BlackRock, “a risk that needs to be considered is the impact of having so much of the global market influenced by one firm, by the perspective of one man,” says a senior bank executive. And, as observers point out, despite the perception that Fink hasn’t made any mistakes, there have been some major missteps. There was the strong backing of Lehman Brothers’ management as the bank was imploding, kicked off by BlackRock’s purchase of a large block of Lehman stock at $28 a share, three months before the firm went bankrupt. And shortly after Bear Stearns collapsed, Fink advised investors to put their money into riskier, high-yield debt, just before that market tanked. BlackRock, as Janet Tavakoli points out, also contributed its share to the toxic-asset morass—with close to $8 billion of collateralized-debt-obligation deals that defaulted in 2007 and 2008.
But BlackRock’s most public and costly mistake—for its clients, at least—was its purchase of the iconic Manhattan housing complex Stuyvesant Town and Peter Cooper Village, a $5.4 billion deal that went into default in early January. Even in 2006, when BlackRock and the New York development company Tishman Speyer bought the 80-acre collection of 110 buildings in the largest residential-real-estate transaction in U.S. history, the price they paid, says Craig Leupold, the president of GreenStreet Advisors, was regarded as “surprisingly high. Everything would have had to have gone right for this deal to have made sense in any sort of short-term—say, 10 years—investment horizon.”
http://www.vanityfair.com/business/features/2010/04/fink-201004?currentPage=1
Larry Fink’s $12 Trillion Shadow
Though few Americans know his name, Larry Fink may be the most powerful man in the post-bailout economy. His giant BlackRock money-management firm controls or monitors more than $12 trillion worldwide—including the balance sheets of Fannie Mae and Freddie Mac, and the toxic A.I.G. and Bear Stearns assets taken over by the U.S. government last year. How did Fink rebound from a humiliating failure to become the financial fulcrum of Washington and Wall Street? Through a series of interviews, the author probes his role in the crisis, his unique risk-assessment system, and the growing concern he inspires.
...
“The Interest of the American Taxpayer”
Ten months later, on the verge of collapse, Merrill Lynch was sold to Bank of America and, soon after that, Thain was pushed out. By then, Fink was more powerful than ever. In March 2008, during the frantic weekend when Bear Stearns crumbled, he was on everybody’s speed dial. On the Saturday morning that J. P. Morgan called its top executives in to the office to consider buying the moribund investment bank, Jamie Dimon hired BlackRock to value Bear Stearns’s assets. The next morning, after Dimon had decided he couldn’t buy Bear Stearns without government support, Geithner, then chairman of the New York Fed, called Fink personally for help in managing the $30 billion of toxic assets that the Fed took over. The work at Bear Stearns was particularly brutal, says Charles Hallac, a senior BlackRock executive: “People were throwing things. They were angry. They didn’t want to help. It was a hostile environment.” In June, after a call from Fink, A.I.G.’s new C.E.O., Robert Willumstad, hired BlackRock to evaluate the ailing insurer’s $77 billion credit-default-swap portfolio. It was a job that would lead to others when the market came crashing down six weeks later.
BlackRock owns no private jets, so Fink was on a commercial flight to Singapore the weekend when Lehman Brothers declared bankruptcy. He was “shocked” when he heard the news and flew back the next day. “I felt like Charlton Heston in Planet of the Apes. I came back and the whole world had changed,” he says. During the next 10 weeks, he would be on the phone to government officials several times a day—logging at least 21 calls with Geithner alone. He also spoke frequently to Paulson, at Treasury, helping to advise on the structuring of tarp, and to his number two, Ken Wilson—frantically calling him at around 6:30 a.m. in the middle of September. “The shit is hitting the fan. Ken, you’ve got to do something,” Fink said of the massive run on the country’s commercial money-market funds that had begun. The funds, including BlackRock’s, were hemorrhaging billions, and Fink told Wilson—who in January joined BlackRock as a vice-chairman—that the government needed to step in and guarantee them before the credit market collapsed, which the Treasury Department did within hours of Fink’s call.
When A.I.G. was bailed out by the New York Fed, that same week, BlackRock was again brought into the company—this time to evaluate and advise the government on what to do with the $100 billion of A.I.G. assets, including the now infamous credit-default-swap portfolio that the Fed had taken over. For several months, BlackRock would have two teams working inside A.I.G.—one working for the company’s management, the other for the Fed. It was a situation so rife with potential conflicts of interest, says Charles Hallac, that for a while neither team was told about the other. By then, BlackRock had already been hired to monitor the troubled portfolios of Fannie Mae and Freddie Mac. In December 2008, BlackRock would get yet another contract from the New York Fed, this time to value $301 billion of Citigroup’s loans and securities, most of which the U.S. government guaranteed against losses as part of its bailout of the giant bank.
The waterfall of government contracts attracted attention almost immediately. But when asked by members of Congress to explain what BlackRock was being paid and why it was selected without any competitive bidding, Fed officials, and Geithner in particular, revealed virtually nothing. Geithner said that there had been no time to solicit bids from other companies and that BlackRock had been chosen because “the interest of the American taxpayer would be best served.” When Senators Max Baucus and Charles Grassley asked to see BlackRock’s contracts, Geithner responded with a letter telling them they were welcome to do so—if they were willing to come to New York to view them in private. When pressed both by members of Congress and by the media for details about BlackRock’s fees, the Fed refused, claiming that BlackRock insisted they remain confidential because it had given the government a discount. But BlackRock claims this was not the case. “We’ve encouraged the Fed to make them public, from the beginning,” says Hallac.
Under pressure, the Fed eventually did release BlackRock’s contracts. Because they are based on an extremely complex payment schedule, it is difficult to gauge exactly how much BlackRock is making, but it appears to be in the neighborhood of $200 million for the first three years of work on the A.I.G. and Bear Stearns portfolios. For two months’ work on the Citigroup portfolio, the firm made $12 million, according to its contract with the Fed—although BlackRock says it worked for two additional months for free. BlackRock does not disclose the fees it charges its other clients, so it’s impossible to know if the U.S. taxpayer is, as Geithner claimed, getting a discount. But, some bankers say, the fees are inconsequential. “Larry would have taken those contracts for nothing,” says one financier. “It’s about the brand, the stature and the new business that flows from that. You couldn’t put a price on how valuable those contracts are.”
In the Traffic
There is little doubt among the financial establishment in Washington and on Wall Street that BlackRock was the best choice to handle the government’s problems. But the firm also benefited from a conspicuous lack of competitors. Some Wall Street banks—most notably Goldman Sachs—had the capacity to do these jobs, but there was no way, says Ken Wilson, that they would have been awarded so many contracts. A former Goldman banker himself, like Paulson, Wilson says that neither the Fed nor the Treasury could have awarded numerous government contracts to firms that were taking tarp money, or to one where so many top Treasury officials had recently worked. While there were other large money managers—including Western Asset Management Company and Pacific Investment Management Company—that could have handled some of the government’s work, they did not have as wide a range of expertise as BlackRock.
That Larry Fink was “in the traffic”—that he had long-standing relationships with all the players involved—was important but, some say, not the key issue. What is more significant, they contend, is the fact that, in a crisis of the magnitude of the 2008 meltdown, there were so many players who helped to create the mess—from banks and regulators to mortgage brokers and homeowners—but only a few with the ability to help clean it up.
As BlackRock has become perhaps too big to fail, Larry Fink’s power in the world financial markets has become, to many, the more critical question. With the trillions of dollars that run through BlackRock, “a risk that needs to be considered is the impact of having so much of the global market influenced by one firm, by the perspective of one man,” says a senior bank executive. And, as observers point out, despite the perception that Fink hasn’t made any mistakes, there have been some major missteps. There was the strong backing of Lehman Brothers’ management as the bank was imploding, kicked off by BlackRock’s purchase of a large block of Lehman stock at $28 a share, three months before the firm went bankrupt. And shortly after Bear Stearns collapsed, Fink advised investors to put their money into riskier, high-yield debt, just before that market tanked. BlackRock, as Janet Tavakoli points out, also contributed its share to the toxic-asset morass—with close to $8 billion of collateralized-debt-obligation deals that defaulted in 2007 and 2008.
But BlackRock’s most public and costly mistake—for its clients, at least—was its purchase of the iconic Manhattan housing complex Stuyvesant Town and Peter Cooper Village, a $5.4 billion deal that went into default in early January. Even in 2006, when BlackRock and the New York development company Tishman Speyer bought the 80-acre collection of 110 buildings in the largest residential-real-estate transaction in U.S. history, the price they paid, says Craig Leupold, the president of GreenStreet Advisors, was regarded as “surprisingly high. Everything would have had to have gone right for this deal to have made sense in any sort of short-term—say, 10 years—investment horizon.”
http://www.vanityfair.com/business/features/2010/04/fink-201004?currentPage=1