Wachovia Corp., the nation’s sixth-largest lender, was forced to sell, eventually going to Wells Fargo & Co.
As for BNY Mellon, the company chose to reimburse its clients invested in funds managed by affiliates and affected by the Lehman bankruptcy.That decision cost the bank $433 million. The senior officers and legal team also expect that their own compensation will be seriously reduced for some time to come, Biben says, because of new executive compensation rules demanded by Congress of all financial institutions.
Across the nation, the stock market plunged; banks stopped lending; airlines, automakers, media companies and others went in search of bankruptcy advice; hundreds of thousands of workers were laid off. The end of September marked the end of modern banking’s Gilded Age.
Boston University’s Hurley thinks that if Paulson and Bernanke could have a Lehman weekend do-over, they’d find a way to save Lehman. “They misjudged the repercussions,” Hurley says. “I think they know they blew it.”
One critic of the government is Ann Graham, who teaches banking law at Texas Tech University School of Law in Lubbock and is editor of the Banking Law Prof Blog. Saving Bear Stearns and not Lehman Brothers showed the lack of a consistent strategy for dealing with the crisis, Graham says. It was a “soap opera” approach, she adds, resulting in uncertainty throughout the economy.
The Lehman Weekend had changed the world of banking forever. More immediately, the credit markets were frozen; huge banks had no confidence in — and wouldn’t lend to — other financial institutions. “Those of us on the inside felt real fear. But there was this disconnect with the rest of the world. America was going on like nothing had changed,” says Biben.
Then the lesson sunk in, and not just with the lawyers or bankers. Biben recalls returning home from work one late night after Lehman fell. An old elevator in his building requires a human operator, and this night, one named Sergio was at the controls. When Biben stepped onto the elevator that night, Sergio asked, “Mr. Biben, what should I do with my 401(k)?” He wasn’t asking how to invest his money; he was asking if it was safe, Biben says. Fortunately, the money was in a safe institution, and Biben was able to reassure him. “That’s when it dawned on me that the crisis was finally striking the rest of America. They were getting it,” Biben says.
By Oct. 3, Congress got it, too, and passed the $700 billion bailout plan. Paulson quickly infused $147 billion into the nation’s nine largest banks in a stock purchase program, to ensure that they would keep functioning smoothly. BNY Mellon sought nothing — it ended the third quarter with $303 million in net income despite writing off a $726 million charge related to support agreements to keep their customers whole against Lehman and other losses. Biben says the bank felt it was “the right thing to do,” but it also made sense from a legal and public relations standpoint. While BNY Mellon did not ask for bailout money, Paulson allotted the bank $3 billion to ensure that it remains strong and to protect its crucial role on Wall Street.
With the Lehman crisis behind him, and awaiting difficult but acceptable fourth-quarter results, the usually upbeat Biben grows solemn as he looks back on his legal department’s efforts. His mind repeatedly goes to the words of one of his heroes, and everyone’s favorite wartime prime minister, Winston Churchill. In 1940, after France fell and as Churchill readied Britain to face Hitler’s onslaught, the prime minister proclaimed: “Let us therefore brace ourselves to our duties, and so bear ourselves that if the British Empire and its Commonwealth last for a thousand years, men will still say, ‘This was their finest hour.’ “
The Lehman Weekend was not a war, Biben concedes: “But all the investment banks and financial services as we had known them for the last two centuries were in very real jeopardy.” His bank’s lawyers worked through the long hours and weeks, while most of the bank’s employees, indeed most of the nation, remained totally unaware of the deepening peril. “This was,” Biben insists, his eyes moistening and his voice filling with emotion, “our finest hour.”
SHORING UP THE BIGGEST BANKS
In an effort to solidify the nation’s nine largest and strongest financial institutions, last fall the U.S. government took the unprecedented step of buying up $147 billion worth of preferred bank stock. Here is where the money went:
Name of Institution: Bank of America Corp.
3rd Qtr 2008* (earnings per share): $0.15
3rd Qtr 2007: $0.82
Amount (in billions): $15
Name of Institution: Bank of New York Mellon Corp.
Headquarters: New York
3rd Qtr 2008* (earnings per share): $0.72
3rd Qtr 2007: $0.67
Amount (in billions): $3
Name of Institution: Citigroup Inc.
This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.
To view this content, please continue to their sites.
LexisNexis® and Bloomberg Law are third party online distributors of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® and Bloomberg Law customers are able to access and use ALM's content, including content from the National Law Journal, The American Lawyer, Legaltech News, The New York Law Journal, and Corporate Counsel, as well as other sources of legal information.
For questions call 1-877-256-2472 or contact us at [email protected]
More From ALM
The State of Legal Technology 2022: Key Findings in the Outsourcing and Automation of Contract ManagementBrought to you by Ontra
Brought to you by Ontra
Brought to you by Ontra
With this subscription you will receive unlimited access to high quality, online, on-demand premium content from well-respected faculty in the legal industry. This is perfect for attorneys licensed in multiple jurisdictions or for attorneys that have fulfilled their CLE requirement but need to access resourceful information for their practice areas.
Our Team Account subscription service is for legal teams of four or more attorneys. Each attorney is granted unlimited access to high quality, on-demand premium content from well-respected faculty in the legal industry along with administrative access to easily manage CLE for the entire team.
Gain access to some of the most knowledgeable and experienced attorneys with our 2 bundle options! Our Compliance bundles are curated by CLE Counselors and include current legal topics and challenges within the industry. Our second option allows you to build your bundle and strategically select the content that pertains to your needs. Both options are priced the same.
Dynamically explore and compare data on law firms, companies, individual lawyers, and industry trends.
Law.com Compass includes access to our exclusive industry reports, combining the unmatched expertise of our analyst team with ALM’s deep bench of proprietary information to provide insights that can’t be found anywhere else.
Law.com Compass delivers you the full scope of information, from the rankings of the Am Law 200 and NLJ 500 to intricate details and comparisons of firms’ financials, staffing, clients, news and events.
September 02, 2022
The African Legal Awards recognise exceptional achievement within Africa s legal community during a period of rapid change.
September 08, 2022
The annual China Law & Practice Awards is the jurisdiction's most prestigious legal awards ceremony that applauds China's elite.
September 14, 2022
The Texas Lawyer honors attorneys and judges who have made a remarkable difference in the legal profession in Texas.
Shipman & Goodwin LLP is seeking a tax lawyer with one to three years of experience in corporate and partnership tax law to join our Tax...
The Superior Court of Fulton County, Atlanta JudicialCircuit is soliciting applicants for the appointment of a full- time circuit-wide juven...
Downtown A/V rated Plaintiff's personal injury law firm seeks paralegal with experience in pleadings, motions, discovery, calendar, mediatio...
Montgomery McCracken Walker & Rhoads LLP wants to announce the Happy Retirement, Honorable Joel Rosen!
DEASEY MAHONEY & VALENTINI LTD is proud to announce that Lauren M. Steins and Leanna B. Ruotanen have been named Partners of the firm.
Parrett, Porto, Parese & Colwell, P.C. welcomes attorneys Alison L. Broad and Andrew I. Schaffer as principals of the firm.