One day early last month, a 42-year-old mother of four raised $19.29 billion, about the size of Jordan’s gross domestic product, by selling just less than 1.3 billion new shares of Bank of America. It was the most money ever raised by an already-public U.S. company, and it allowed her bank to repay its $45 billion TARP loan, shaking loose all the baggage that went along with it.
Lisa Carnoy’s record-breaking deal could well be looked back on as one of the profoundly great ruses in the history of capitalism if, say, a cataclysmic implosion of commercial real estate loans plunges the country into new and deeper misery. In that case, why investors scooped up a billion shares in a reeling bank with no permanent chief executive and a serious collection of contaminated assets will be something to consider.
Most likely, though, history will be kinder, and the deal will be seen as a turning point in the fate of one of the most important financial institutions still standing. Either way, those billions will define the career of Ms. Carnoy, quietly one of the most powerful women on Wall Street. If she included her team’s personal fitness programs and favored yoga positions in a pitch to Lululemon Athletica, as she once did, you can imagine the zigzagging artfulness that went into her own bank’s offering.
OF THE HUNDREDS OF BANKS that received troubled asset relief program funding, none were given more than Bank of America: It alone got well more than GMAC, Morgan Stanley and U.S. Bancorp combined. And as one of the last to pay back the money, it had to deal not only with the continuing shame of being propped up by the federal government, but with the curbs on corporate spending, executive pay and dividend increases.
In September, The Wall Street Journal reported that the bank had been trying to “wrestle themselves free of the government’s grip.” But the Treasury wouldn’t take back its $45 billion until the bank—which had acquired the dodgy mortgage colossus Countrywide three months before agreeing to buy Merrill Lynch, Ms. Carnoy’s old firm—could show it would stand on its own feet.
That wasn’t going to be easy. To naked eyes, BofA was wobbly. Finding a replacement for Chief Executive Ken Lewis, who announced in the fall that he’d step down at year’s end, was not going well. Candidates bristled at the government compensation regulation that came with TARP. And while Mr. Lewis fought off shareholder lawsuits accusing him of concealing Merrill’s sorry state before the merger, there were investigations from Congress, the S.E.C. and the New York attorney general, too.
Throughout the autumn, Ms. Carnoy prepared the kind of gigantic offering that could raise money to pay back Washington. Four or five times, teams were brought in for false starts: “Fifteen people were on deck,” she said about one near miss, “to have multiple all-nighters and get this done over a weekend.” Their packed luggage returned home.
On Wednesday, Dec. 2, Ms. Carnoy gathered with colleagues in a 19th-floor conference room to hear from the Treasury and from the Federal Reserve, whose board had to approve the stock offering. “You want to make sure if your mother says yes, that your dad also agrees,” said Dan Cummings, head of equity capital markets for the Americas.
“It was methodical,” said an official at the Treasury, which used the department’s stress tests to determine if banks could afford to stand on their own. “We laid out what we wanted to do, how we wanted to do it, and this was a nice conclusion.”
MS. CARNOY’S CORNER OFFICE in the Bank of America Tower on 42nd Street is decorated with a football, four tennis balls, a basketball, two Foster’s cans, a Mets lunch box, a Mets home plate and a Louisville Slugger baseball bat. She is an eccentric conversationalist, sporadically bursting into large laughter, then settling into long and odd silences.
Last year on Wall Street, equity capital market underwriting was the biggest driver of fees, not M&A advising. Revenues rose 51 percent to $42.1 billion. “I think what we do is provide judgment and guts under duress,” she said Monday, “to have the confidence and conviction that we could do this whole deal, that we could do it in a day, that it would be successful for our investors.”
Ms. Carnoy is an aggressive optimist, and an aggressive employee. Two years ago, when she was Merrill Lynch’s co-head of equity capital markets for the Americas, desperate to raise equity for a firm collapsing under subprime catastrophes, she spent Christmas morning on a conference call in a hotel bathroom. Another night, she guided her daughter out of her bedroom’s princess tent at 3 a.m., crawling inside to speak with a sovereign wealth fund manager.
According to Investment Dealers Digest, few women “have risen in such male-dominated areas as ECM, a business defined by long hours, sales pitches, stiff competition and buddying up with corporate chiefs. One needs a lot of stamina for this role, and Carnoy pounds the tables as well as anyone.” As she tells it, she hadn’t asked to be promoted to the global head of equity capital markets after Bank of America bought Merrill. “Have you seen my passport? God no,” she said. “Now I have to go to Asia.”
Even though she was once an American history major, the enormity of last month’s offering didn’t press down on her quite as hard as her earlier work to raise money for flailing Merrill. But it pressed nonetheless. “This deal is not fighting for our survival, but fighting for our freedom,” she said. “And also to show the world that this combined company is working, it’s profitable, it’s successful, it’s able to raise all this money and off we go.”
“WE WANT TO BREAK IN HERE because we do have some breaking news,” CNBC’s Melissa Lee said late Wednesday, Dec. 2, on the phone with Charlie Gasparino. “Bank of America is out of the TARP program, they’re going to pay $45 billion back,” he said, gulping. “And, I’m going through my notes here—they’re raising capital.”
The plan was to sell a tectonic amount of stock, and to pay back the rest of the money with excess liquidity. “Which means, essentially,” said Ms. Lee, “that the stock will be diluted?”
“Well, maybe, but they’re going to repay TARP,” Mr. Gasparino said. “I can’t imagine Citigroup’s leaving the TARP program anytime soon.”
At 6 a.m. the next morning, the bank outlined the deal in a S.E.C. filing. By midday, the offering’s fate was clear: “It’s a little like being 6 years old,” Mr. Cummings said, “and knowing you’re going to Disney World the next day.” Bank of America’s president of global banking and markets, Tom Montag, who had been given a $39.4 million bonus in 2008 after running the Merrill arm that lost $15 billion in a quarter, stuck his head in: “Boy,” he said, “this is nice.”
His colleagues had spent months preparing. Besides perfecting the right story to share with investors, they built a deal with true artfulness: Bank of America needed a shareholder vote to approve such a big stock offering, but there wouldn’t be time for one. “The thought was,” Ms. Carnoy said, “how do you make something that looks, smells, breaths and acts like common stock?”
The solutions were called common equivalent securities and contingent warrants, which essentially both morph into actual stock. Better yet, when the old stockholders’ vote finally rolls around, penalties built into the deal make it nearly impossible for a rejection.
After a Thursday spent dealing with investors, Ms. Carnoy and her team picked a price for the new stock at 5:30 p.m.: $15, or just less than a 5 percent discount on its market price. Citigroup’s discount would be four times steeper when it sold off a massive amount of equity later in the month.
The leaders of TARP-supported banks, Ms. Carnoy included, like to point out how much the federal government made by investing in Wall Street, but not, of course, how resplendently Wall Street would have collapsed without the investment. Still, they like to feel that there’s a lesson to be learned here: After the stock was priced, Ms. Carnoy had someone Google the National Anthem. It played over Bank of America’s loud system.
She was moved, even though she’d just pulled off a plan to finally rid Bank of America of America. “I mean, there is some irony to it, right, because we were in such a rush to pay it back,” she said. “But there was still good feeling that we were doing something great for our company, doing something good for our country.”
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