Dolan just keeps on bidding. Although the bidding for the Boston Red Sox closed

formally on Dec. 20, his latest $790 million bid (including $40 million in

assumed team debt) to buy the team, submitted late Monday night, keeps throwing

the talks into disarray. Negotiations among the competing parties are ongoing,

with the two other interested parties in the sale-corporate lawyer Miles

Prentice, supported by the Quadrangle Group and cable giant Comcast

Corporation; and the supposed declared winner, the John Henry–Tom Werner– New York Times group-also tweaking their

bids.

But this much is true: Red Sox chief executive John Harrington,

Commissioner Bud Selig and the clubby cabal of major-league baseball's owners

will now face a scary realization when they vote on the sale this week: Chuck

Dolan seems determined not to walk away from this deal, so they'd better close

it quick.

Since the Red Sox current ownership signed off on Dec. 20 on the

$700 million, Bud Selig–approved offer fronted by Mr. Henry, the Florida

Marlins owner, and Mr. Werner, the ex–San Diego Padres owner, with $100 million

in cash added on from The New York Times ,

the fax machine at Mr. Dolan's Boston lawyer's office has been struggling and

cranking away.

$700 million, $740, now $790 million-all for a team that pays

Jose Offerman $6.5 million a year to play second base.

Unlike the competing bids, Mr. Dolan's offer is a simple one:

there are no high-profile buddies of Bud Selig, no flashy Wall Street bankers,

no George Mitchells, no conditional financing agreements-just Chuck and his

Cablevision stock. Take it or leave it.

Which is what scares the heck out of Major League Baseball. Since

1980, Mr. Dolan, who through Cablevision's ownership of Madison Square Garden

owns the Knicks and Rangers, has been in pursuit of a major-league baseball

team (he has also tried to buy the New York Jets and the Cleveland Browns). He

bid for the White Sox in 1980, the Yankees in 1998, the Mets in 1999-all to no

avail. For some reason that has yet to be made public, Major League Baseball

wants no part of Chuck Dolan and his Cablevision billions. Indeed, according to

one banker involved in the ongoing Red Sox sale talks, Chicago White Sox owner

Jerry Reinsdorf, one of Mr. Selig's most ardent supporters, has reportedly said

that there is no way that Mr. Dolan will ever get approved by the owners-a

condition of any eventual sale of the club.

One wonders why. Yes, Mr. Dolan's brother Larry owns the

Cleveland Indians, but so what? Mr. Henry has a 1 percent, limited-partner

stake in the Yankees, in addition to owning the Marlins. Mr. Werner still owns

a small piece of the Padres. Indeed, the most recent excuse put forward by Red

Sox president John Harrington-that Mr. Dolan's ownership of the Knicks and

Rangers was also a potential conflict of interest-elicited chuckles from those

close to the negotiations. Didn't Ted Turner own the Atlanta Hawks as well as

the Braves? For whatever reasons, Bud Selig and his gang are obviously ready to

pull out any stops available to keep Mr. Dolan with his nose pressed to the

owner's-box window, looking in. "If Al Goldstein bid $2 billion for the Red

Sox, Baseball would say, 'I'm sorry you are not qualified,'" said one banker

involved in the talks. "Baseball is a club of rich guys who can do whatever

they want. Chuck can say whatever he wants but the owners will never let him

into the fraternity."

Mr. Dolan first came up against the forces of Mr. Selig and

company in 1980 in his bid for the Chicago White Sox. Cablevision was then a

mere sprite of a $250 million company and the Knicks and Rangers were still 14

years away. But Mr. Dolan, with his small cable-subscriber beachhead in the

Long Island suburbs, knew the importance of sports programming-in New York or

Chicago. He was nevertheless outbid by construction magnate Edward De Bartolo

Sr., but when Mr. Selig, then the owner of the Milwaukee Brewers, led the

owners in a campaign against Mr. De Bartolo, the club was sold to Mr. Reinsdorf

and his partner Eddie Einhorn instead, and Mr. Dolan turned his attentions to building

up his suburban cable empire.

Ever since then, Mr.

Reinsdorf and Mr. Selig, who was named acting commissioner in 1992 and took the

post officially in 1998, have been thick as thieves. Their club is an exclusive

one, led by Mr. Selig; Mr. Reinsdorf; Carl Pohlad of the Minnesota Twins;

George Steinbrenner of the New York Yankees; and Fred Wilpon of the New York

Mets. They are men who have gotten rich together and gone to the wall for each

other.

Serving as the club's gatekeeper has been Commissioner Selig, the

used-car dealer from Milwaukee who, nine years after replacing former

Commissioner Fay Vincent, spends 99 percent of his time on the 30th floor of

the Firstar building in Milwaukee as

opposed to the grander Park Avenue suite that Major League Baseball makes

available to the commissioner. Make no mistake-the gates of baseball will open

for a certain breed of owner.

Take Mr. Henry and Mr. Werner, both in their early 50's, and

Montreal Expos owner Jeffrey Loria, who is in his early 60's. These are guys

who have made enough money in their careers-commodities trading, TV sitcoms and

art dealing, respectively-to take a seat at the table, but who lack the

billions to allow them to do it on their own. Plus they are fans: baby boomers

who get dewy-eyed talking of their love for the game.

They are also very adept at swearing fealty to Mr. Reinsdorf, Mr.

Steinbrenner and the other owners. Chuck Dolan is not a fan, nor is he anyone's

vassal. He rarely attends Knicks and Rangers games and at 74 years old, he is a

seasoned Fox Sports Net partner of Los Angeles Dodgers owner Rupert Murdoch and

came within inches of buying the Boss' beloved Yanks in 1998. Unlike Tom

Werner, he will commission no sappy documentary about Fenway Park, nor will you

see him move his family to Boston if he gets his team as Mr. Henry has promised

to do.

There is a midlife-crisis quality to this new breed of owner-Mr.

Werner is romancing Katie Couric; Mr. Henry is an amateur musician with an

interest in Eastern philosophy-that contrasts with Mr. Dolan's harder,

Eisenhower-era sensibility. For Mr. Dolan, this is all about business; the Red

Sox and their NESN cable network are just another soft asset to add to his

collection.

To be sure, he has made it clear that his bid is a personal one,

linked in no way to Cablevision. That may well be, but separating Cablevision,

the company, from the Dolan family will never be an easy task.

Which is what scares the lords of baseball. They all know Chuck

Dolan and they know that they can't control him, plus they have no idea what

his intentions are. Where is the money coming from? Is he borrowing off his

stock, or will he sell to raise cash? Bankers close to the deal say that the

primary objection of Major League Baseball remains Mr. Dolan's brother's

interest in the Cleveland Indians. While a Chuck Dolan link to the Indians has

never been made public, those who have talked to baseball officials suggest

that if need be, a money trail could be established. Larry Dolan is a Cleveland

lawyer, they say. Where did he get $320 million to buy the Indians?

Owners are also worried that Mr. Dolan, with his ready billions,

would be the new Steinbrenner on the block, bidding up contracts in search of a

winner-as he has with the Knicks and the Rangers. There is another reason that

Mr. Selig does not want the Dolans to win. Mr. Selig's plan for contraction had

always hinged on the fact that Mr. Henry would sell his Marlins to Mr. Loria

after getting the Red Sox. The plug would then be pulled on the Expos, leaving

either the Minnesota Twins or the Tampa Bay Devil Rays as the other team to go.

But now the back room, Bud Selig way of doing business is under

attack. Massachusetts Attorney General Thomas Reilly has suggested that the

Henry group was favored by the commissioner's office despite its lower bid. And

the revelations that Mr. Selig accepted a $3 million loan from a company owned

by Mr. Pohlad have not helped his image either.

All of which Chuck Dolan knows, and hopes will work in his favor.

By allocating the extra $50 million in his latest offer to the Yawkey Trust

(which owns 53 percent of the Sox), Mr. Dolan is addressing the root cause of

the Massachusetts attorney general's complaint: that the Red Sox, in taking the

lower $700 million offer from the Henry group, are selling short the interests

of the charitable foundations that are to receive the trust's share of the

funds. Strange as it may seem, Mr. Dolan, whose visits to Boston have been

cloaked in secrecy, now sees himself as a savior of sorts. While Mr. Henry and

Mr. Werner did undertake a P.R. offensive in Boston last week, they suffer in

the smarting eyes of Red Sox fans due to their association with the current

team president, the much-reviled Mr. Harrington.

So it has come to this: Mr. Dolan, that old monopolist whose

cable service charges some of the richest fees in the country, might suddenly

have become a man of the Red Sox people. But time is running out. Baseball

owners have the Red Sox sale to the Henry group on their agenda at their

meetings in Phoenix on Jan. 16. The sooner they approve the sale, the sooner

they will be able to once more slam the door on Chuck Dolan's

baseball-ownership dream.

Levin with a thrilling vision that new-era growth would propel the merged

company far into the next decade, Richard Parsons, the C.E.O.-designate for AOL

Time Warner, formerly declared the dream dead.

It happened on Jan. 7, in a State of AOL Time Warner conference

call. "We expect revenue and EBITDA [industry parlance for 'cash flow'] growth

for the first quarter to be essentially flat ,"

Mr. Parsons said, putting extra emphasis on the last word. "Last year, we made

certain economic assumptions and ran right into a major recession," he

continued. "As a result, we got no credit for our achievements because of the

high expectations that we ourselves created. Going forward, our assumptions

about the economy will be more conservative. It simply is not prudent to

forecast the economy in a volatile world."

Bob Pittman, now the chief operating officer–designate for AOL

Time Warner, was sitting right next to Mr. Parsons during the call, and he

might well have cringed. For it was he and his fellow AOL alumnus, chief

financial officer J. Michael Kelly, who throughout 2000 and most of 2001 had

peddled a slick 30 percent growth message to an all-too-gullible Wall Street

community. AOL Time Warner was different, Mr. Pittman smoothly assured

investors as Internet and technology companies keeled over left and right. They

had 140 million–oddsubscribers-andthegreat growth engine itself in Dulles, Va.,

was still sucking in $23.90 apiece per month from 50 percent of logged-on

America.

Wall Street, though, caught on fast. A recession was a recession,

and AOL Time Warner, the biggest media company in America, couldn't be immune.

On the sell side, analysts downgraded their numbers. Merrill Lynch's

influential cable analyst, Jessica Reif Cohen, started the trend on Oct. 17

when she revised her rating on the company to neutral from buy-to the barely

suppressed ire of Mr. Kelly and Mr. Pittman. Even the queen of cheerleaders,

Morgan Stanley's Mary Meeker, took down her numbers last week; she maintained

her strong buy rating, of course, but raised some blunt questions about the

sustainability of the AOL growth model. The stock, at $32 and change, was an underperformer-far off its pre-merger high of

$91, and the province of short sellers far and wide.

So yes, the mood on the conference call was dour. Indeed, Mr.

Parsons, Mr. Levin and the newly appointed C.F.O., Wayne Pace, seemed eager to

get on with it and put up as gloomy a picture as possible. First off, they

would take a $60 billion charge to earnings in the first quarter, reflecting

the difference in the price that AOL paid for Time Warner in January of 2000

and the sharply reduced value of its assets now. They would also pay close to

$7 billion in cash to Bertelsmann in order to buy out their former partner's

stake in AOL Europe-which, it was disclosed, was losing $600 million a year.

And to top it all off, the forecast for revenue growth for the year would be a

snail-like 5 to 8 percent.

All of this dire news was delivered by C.E.O.-designate Mr.

Parsons and his doleful new C.F.O., Mr. Pace-both of whom are Time Warner men.

Mr. Parsons, a longtime Gerald Levin ally, has been a Time Warner board member

since 1991, and Mr. Pace is a former finance man for Turner Broadcasting

Systems.

The deep rumble of Mr. Parson's boardroom baritone set an

appropriate tone for the evening. Yes, here was a man who knew how to present

the hard facts of life. A protégé of Nelson Rockefeller, a member of Sanford I.

Weill's Citigroup board and President Bush's favorite media guy-he co-chaired

the President's Commission to Strengthen Social Security-the 6-foot-4 Mr.

Parson more than fills up a corner office with his gravitas. Even his choice of

words seemed apt for the moment: " Going

forward, we will be more conservative ….

It simply is not prudent " (a word few AOL executives have been heard to

utter). Blunt and reassuring, the tenor of Mr. Parson's remarks were in sharp

contrast to Mr. Pittman's; the only AOL representative on the phone call, Mr.

Pittman devoted most of his time to spinning reasons as to why AOL Time Warner

didn't hit its numbers.

"The advertising recession was the drag on our company's earnings

for 2001," he said. "If we had had just half

of the advertising that we had in the year 2000, we would have easily hit our

original guidance of 30 percent EBITDA growth for 2001." No doubt about it: Bob

Pittman is a man who is used to hitting his numbers, and one senses that he

still can't believe he missed them. But here's the thing: to plead if only is disingenuous to a fault. He

and his team were dishing out their forecasts as the advertising recession

built up before them like a massive tidal wave. As AOL's chief operating and

market executive, it was his job to see it coming and adjust his forecasts

accordingly-something he and his growth-obsessed AOL gang did not (and perhaps

could not) do.

Following Mr. Levin's surprise resignation, there was some

speculation that Mr. Parson's tenure at the helm would be a short one, and that

Mr. Pittman-now in charge of all the operating units-would shortly replace him,

finally concluding AOL's takeover of Time Warner. But the opposite now seems to

be the case. AOL's core dial-up Internet business has matured, while the small

pockets of growth to be found within the company are coming from Time Warner

units like the high-speed Internet services at Road Runner and the success of

movies like Harry Potter and the

Sorcerer's Stone and Lord of the

Rings , which between them have taken in a half-billion dollars domestically

so far.

In fact, the two major pieces of bad accounting news this week

hark directly back to AOL and its bygone glory days. The $60 billion charge

recognizes the fact that the AOL stock used to buy Time Warner was ludicrously

overvalued. And the contractual agreement to pay billions to Bertelsmann for

full control of an entity that bleeds a half-billion a year in losses follows

as well from a deal struck by AOL during the peak days of Internet fever.

In fact, there were many who felt that Mr. Levin's

resignation-particularly in view of the $60 billion charge-was his way of

saying Yes, I was seduced by those

snake-oil salesmen from Dulles. Steve Case put one over on me: AOL stock was

never worth 90 bucks, 70 bucks or even 50 bucks . Indeed, a recent report by

Morgan Stanley attaches a fair value of only 38 dollars to the stock. But all

the same, Mr. Levin got the last laugh: While Mr. Case remains ceremonial

chairman, it will be Jerry's man, Mr. Parsons, running the company. In Dick

Parsons, he has appointed a C.E.O. in perfect chime with dour economic times. A

realist and an accommodator who's as comfortable at a Lincoln Center opening as

he is lobbying regulators in Washington, a personal friend of a popular

President as well as of powerful Federal Communications Commission chairman

Michael Powell, Mr. Parsons is perfectly positioned to lead AOL Time Warner to

the next stage.

"I am 100 percent committed to the strategic vision that drove

Steve Case and Jerry Levin to fashion the merger of AOL Time Warner in the

first instance," Mr. Parsons stated

Monday. Fair enough-but it was never his deal to begin with, and what the

conference call this week brought into sharp relief is that the deal itself was

a drastically mispriced one.

Those who fashioned it-Mr. Levin and Mr. Case-are now in retreat;

those who hyped it-Mr. Pittman and his crowd-are still breaking a sweat. But

it's the man who inherited it, with realism and cold assessment-Dick

Parsons-who, for the time being, owns the AOL Time Warner stage. And it would

be genuinely surprising if he exits it anytime soon..

Madison Square Garden. The New York Knicks, Cablevision's supposed jewel, blew

another one-in epic fashion. Playing the Magic, and up by 10 with three

minutes–plus to go, Allan Houston and Latrell Sprewell watched stone-faced as

the closing seconds dribbled through the floorboards. Spike Lee shook his head

at the horror of it all. Howard Stern, Chris Rock and Robert Wuhl, sitting next

to him, seemed perplexed. Throughout the sold-out Garden, boos rang out.

Somewhere out there, a stomach may have been churning, and it may

have belonged to Jim Dolan, president and chief executive of Cablevision and

chairman of Madison Square Garden. Mr. Dolan wasn't present Sunday night-his

family's four courtside seats underneath the Knicks basket were empty.

Wherever he was, though, it was his difficulty: Former Garden

chairman Marc Lustgarten had passed away, longtime president Dave Checketts had

been cashiered. Madison Square Garden and the Knicks were now Jimmy Dolan's

production. And the Knicks could well be in danger of missing the playoffs for

the first time in 10 years.

The foundation of Cablevision's empire-constructed painstakingly

by Jimmy Dolan's father Chuck over 30 years-has been its ring of three million

wealthy cable subscribers surrounding Manhattan in Long Island, northern New

Jersey, Fairfield County in Connecticut, Westchester County, Brooklyn and the

Bronx. While Jimmy was weaned on the hard-asset side of the business-starting

out in the early 1970's as a gofer in a Chicago Cablevision warehouse-there's

no mistaking the fact that since becoming chief executive in 1995, Mr. Dolan

has become more closely identified with the flashy Cablevision software: the

Knicks, the Rangers, the Radio City Music Hall and its programmer, Rainbow Media

Holdings-home of Bravo, American Movie Classics and the Independent Film

Channel.

Indeed, on Wall Street these days, the buzz is growing among

traders and bankers that the Dolans might finally cash in their cable assets

and restructure as a media and entertainment company, the Knicks

notwithstanding.

The signs are numerous.

On Dec. 27, the company announced that it would lay off 600

employees and take a $55 million restructuring charge against fourth-quarter

earnings. "It is always very difficult to reduce staff; however, it is also

imperative that Cablevision position itself to achieve maximum operational

results," said Mr. Dolan. He declined to comment for this story, but for a

family-run company like Cablevision-four Dolans sit on the company's board,

including Mr. Dolan's brothers, Patrick and Thomas-such a market-appeasing move

came as something of a surprise. Like all other media companies, Cablevision

was feeling the recession's bite, and its stock-at 47 and change-was way off

its high of $91. But the Dolans have always been known for keeping the concerns

of the Street at a far remove.

Unlike its peers at AOL Time Warner, Cablevision has never been a

company to throw sweet growth promises to investors. For years, it has borrowed

and spent billions on building up its cable systems and acquiring its

entertainment assets. Profits and dividends, as with all cable companies, have

been nil, and during Mr. Dolan's reign as C.E.O., the stock has increased more

than sevenfold. Those that didn't like it-well, they could go elsewhere.

There was also a nicely choreographed Jim Dolan interview in the

Dec. 3 Barron's . "Is the family so in

love with the business that they wouldn't consider an offer to sell? In fact we

would," Mr. Dolan said. The piece was peppered with flattering comments from

longtime Cablevision bulls like Merrill Lynch analyst Jessica Reif Cohen and

one of its largest shareholders, Mario Gabelli of Gabelli Asset Management.

All of this occurred against the backdrop of AOL Time Warner's

losing to Comcast in its bid for AT&T's 16 million cable subscribers. For

years, speculation has been rife that Chuck Dolan's endgame was to build up a

suburban cable empire and then sell it for a princely fee to Time Warner, the

cable giant of greater Manhattan. While bankers say that C.E.O.-to-be Dick

Parsons aggressively bid for Comcast, a Time Warner–AT&T fusion would've

had to clear major regulatory hurdles in Washington. Could it be that Mr.

Parsons, with his deep Washington connections, stuck his finger in the

regulatory winds and chose to pass on AT&T? Could he be preparing to lock

in New York by bidding for Cable-

vision's three million subscribers? Whatever the case, the market has punched

Cablevision's stock up from a low of $33 in early November to today's $47. "I

think the Dolans are trying to send a message to Wall Street that they are

finally serious," said one media banker familiar with the company. "The cable

systems have reached a level of maturity, while Rainbow is growing. What smart

guys do is sell the stuff that is mature and keep the stuff that is growing."

And if there is one thing that Jim Dolan is desperate to prove,

it's that he is a smart guy. It

hasn't been easy; past attempts to portray the family relationship have

backfired. For example, in Newsday in

1997, Chuck Dolan was asked what he did when he came into conflict with his son

the C.E.O.

"I let him run up and down the room until he gets tired," Mr.

Dolan said.

"See, it's just like it was when I was 5 years old," Jimmy Dolan

responded.

Mr. Dolan  the Younger has also worked hard to counter

the image of himself as a somewhat callow scion by charging into a number of

deals. In early 1998, he bought electronics retailer Nobody Beats the Wiz

(renamed the Wiz) after it declared bankruptcy, and later that year he acquired

the Clearview Cinema chain. Both units remain loss-makers, and as for the

promised synergies-"Clearview theater lobbies will be a great place to display

some of our products, like our high-definition television and video-on-demand,"

Mr. Dolan said at the time-well, when was the last time you saw a Cablevision

display booth in a Clearview movie house?

Make no mistake, Jimmy Dolan is a deal guy, and there have been

some very good deals. In 1997, he made a deal with John Malone and TCI in which

Cablevision gained 820,000 regional subscribers in exchange for TCI taking a

stake in Cablevision. He also was instrumental in pulling the plug on

Cablevision's partnership in the now-bankrupt Internet service provider

Excite@Home before other investors (such as AT&T) did. While his dad is

famous for sitting back and saying no-Chuck Dolan refused to sell out to Time

Warner in 1993-the son, say bankers who have worked with him, is always eager

to deal. Indeed, they say, Jimmy Dolan was on the verge of selling Rainbow

Media to Barry Diller early in 2001, before Chuck Dolan swooped in and took the

deal off the table.

Now-perhaps not coincidentally-Jimmy is beginning to assume a

larger public profile. He was front and center in organizing the Concert for

New York City at the Garden on Oct. 20 to raise funds for the families of the

World Trade Center victims. And he attended the press conference announcing the

signing of Allan Houston's $100 million contract. Mr. Dolan also seems to be

easing into his identity as a media player. This March, he is set to remarry in

Florida-he has four children from a previous marriage-and Rupert Murdoch and

Viacom's Mel Karmazin reportedly have received invitations.

Nonetheless, his presence around New York remains a little

ghostly. Forty-five years old, he lives next-door to his father. He sails a

yacht and plays the guitar in his own garage-style band, the Simpson House

Band. There are echoes of a George W. Bush–like reckless youth followed by

salvation: Mr. Dolan has admitted to having been an alcoholic and chemically

dependent, and he has been sober for the last nine years.

If there is one thing that would permanently bring him out from

behind his father's shadow, it would be the sale of the cable systems-especially

if he could finagle a price higher than the $4,500 per subscriber that Brian

Roberts at Comcast is paying for AT&T Broadband. To that end, he has sunk

over $2 billion into upgrading the system, to a point where he thinks he can

charge over $100 per month to customers. While it's certainly doubtful that his

subscribers will eventually be worth $10,000 a head due to all sorts of

interactive e-commerce type offerings, as he recently said to Forbes , if he can get a price well north

of $4,500, he might well do it.

It would be a smart move,

too. The growth numbers for cable subscribers remain soft, and the specter of

further market-share encroachment on the part of satellite-television providers

is a constant one. AOL Time Warner is looking to deal-and on a sentimental

note, Gerald Levin, who started out in the cable business with Chuck Dolan in

the early 1970's, is retiring this May. So the Dolans might be very happy if

Mr. Dolan turns their Cablevision stock into cash or AOL Time Warner stock

while keeping his grip on the

really fun stuff-the Knicks, the Rangers, the Rockettes, the TV programming.

And if the Knicks don't make the playoffs, so what? Madison Square Garden's

cash flow will take a hit, but they'll have the money to hire a very expensive

new coach.

"Jimmy, I think Ken Lay has a problem," Mr. Shapiro reportedly said. "And I think he could really use your help."

Jimmy Lee, the maestro of the syndicated loan market, Wall Street's most famous corporate bailout artist, prepared to go to work. This was the good stuff, just like the old days at Chemical Bank in the early 1990's, when he ladled out billions in loans to companies in desperate need of cash: General Motors, Kmart, Westinghouse, IBM, Mr. Lee had bailed them all out. You are done , he would respond to the importunate pleadings of one broke C.E.O. after another, raking in rivers of fees in the process.

Now Ken Lay was asking for his help. Enron was indeed a disaster. The quicker the business collapsed, the more capital it consumed, and the more it consumed, the more it needed to borrow. It had become a confidence game. And the only way for the company to survive was for it to cut a deal with the banks, who along with many others were on the hook to Enron for billions of dollars.

But with the company facing bankruptcy, such a feat would not be easy. Before the crisis had become a front-page topic, Enron had drawn down on a $3 billion credit facility. Now it needed more cash. Which is where Mr. Lee and his team came in. Ken Lay and company would get their cash, but there would be some strings attached: The company would have to find a strategic partner.

By Nov. 10, Mr. Lee had put together a package. Enron would get a billion dollars in new loans ($400 million from Chase and $600 million from Citigroup), all of which would be secured by two gas pipelines. Lehman Brothers had brought in Dynegy as the strategic partner, and Chevron would provide $1.5 billion in additional cash.

On Nov. 23, Enron issued a press release, trumpeting the new loans and heralding them and the merger as the first steps to be taken to restore the shine to its battered name. "We will work with Enron and its other primary lenders to develop a plan to strengthen Enron's financial position up to and through its merger with Dynegy," Mr. Lee said in the press release.

Mr. Lee was wary, though. This deal had the potential to be one of the great stinkers of all time; why attach his name to a losing cause? He had purposely kept out of the limelight for the past year; putting his name on the release would be a calculated risk. But he did it anyway, though his counterpart at Citigroup, Salomon Smith Barney chief executive Michael Carpenter, declined to follow suit. (A spokesman for Citigroup said their C.E.O.'s are not typically quoted in client press releases.)

Once the merger was formalized, Mr. Lee was ready to cobble together another one of his formidable loan syndicates and lend Enron/Dynegy another $10 billion, say those familiar with the matter. In fact, sources say, a meeting with the many Enron creditors had been set for the Wednesday after Thanksgiving.

Mr. Lee, according to those close to the deal, had already laid the groundwork, putting in a number of calls to chief credit officers at various banks. It was a pitch he had used many times before: You've got two choices: either we are in this together, or we are not, and if we are not, well it's suicide. . . We are with you Jimmy, we are ready to stand tall.

But it was too late. The alleged trickery and deceit of Enron's accounting was becoming clearer by the day, and Dynegy's Chuck Watson retracted his offer, scuttling the deal and precipitating Enron's bitter end game.

Enron was a lost cause. Not even Mr. Lee's good name could turn it around. But, for Mr. Lee, it was a rare moment back in the spotlight, back at the center of the game.

Since assuming his new role as vice chairman at JP Morgan Chase and foregoing his leadership of Chase's investment banking division, Mr. Lee has been largely absent, and unusually silent. Companies everywhere were going bankrupt; C.E.O.'s were desperate for cash, and where was he, one of the Street's great dispensers of capital?

Then Enron came along. And though Mr. Lee no longer runs the Chase syndicate desk, making way for a new, younger generation of bankers, it marked for him a bit of a comeback.

Friends of Mr. Lee don't entirely agree with the characterization. They say he has been more than active behind the scenes, raising $4.5 billion for Lucent in February and recently working with leveraged buy out pro Teddy Forstmann on a restructuring of his beaten down McleodUSA. He has also been busy with Jack Welch, an advisor to JP Morgan Chase, in setting up a leadership institute at the bank.

And he's still got the attention of the big guys.

"Jimmy is a relationship man" said Kohlberg Kravis Roberts & Co.'s Henry Kravis. "In fact I'm having breakfast with him in a few days. Most relationship bankers are like concierges. Jimmy comes up with solutions: He is a full-fledged investment banker."

Mr. Lee declined to be interviewed.

But given Mr. Lee's history, all this was relatively small. Then came Enron. Closer to the big game he usually goes after, it also brought him the kind of fees to which he had become accustomed. At the same time, it sent out a message to all those rival bankers who snickered that Mr. Lee had been kicked upstairs.

Jimmy Lee was back.

"When people need creative financing in less than ideal circumstances, he is the guy you turn to," said Lucent chief executive Henry Schacht.

But, in the case of Enron, didn't he come out a loser? Said leveraged-buyout lawyer Richard Beattie of Simpson, Thacher & Bartlett: "He did all that he could to save Enron."

Last week, at a leadership conference in midtown, striding back and forth across the stage, Phil Donahue-style, the 49-year-old Mr. Lee, well under 6 feet, seemed much the smaller man than his suspender-snapping, deal maker image. His thinning gray hair was cut short, and he was attired in the most conservative of blue bespoke suits. A chunky gold ring glimmered as he waved his hands under the lights.

"At the time I'd been running our business in Australia," Mr. Lee said, relating to a new audience that moment when he had stopped being a Wall Street drone and instead started his ascension in the syndicated loan business. 'I didn't like my job or my boss. I knew, too, that there was this guy Bill Harrison at the bank who was an up-and-comer. One August morning in 1982, I just walked into his office and said, 'My name is Jimmy Lee. You don't know me, I don't know you very well, but I don't like my job or my boss and I want to work for you.'"

The story is revealing in a number of ways, as it speaks to Mr. Lee's notorious infighting skills and his ability to cultivate those mightier than he.

Mr. Lee's idea was simple: By turning Chemical's lending relationships into investment banking relationships, Mr. Lee figured the bank could increase market share on the loan side, while reaping the higher margin business on the deal side. It was a gambit that demanded the bold, I'm-going-to-rip-your-face-off attitude of the dealmaker as opposed to the milquetoast sensibility of the relationship banker.

Soon after he was appointed managing director at the bank in 1988, he began wearing the famous dollar-sign suspender. For his 40th birthday, he bought himself a Shelby Cobra; he grew his hair long, letting it flair, Michael Douglas-like, over his ears and touching it up with a bit of gel.

And then there was the trail of bosses he left in his wake, although his ultimate boss, Mr. Harrison-now J. P. Morgan Chase's C. E. O.-has always been a fixture in his life. Indeed the joke has always been that the shortest job on Wall Street is being Jimmy Lee's boss. Mr. Lee just hated to lose. If it meant having to be a bastard every now and then to get there, so be it.

"Jimmy once said to me, 'It's not about money, it's all about power,'" said one former colleague.

Mr. Lee's business was shooting the competition's lights out. Chase's gains in M.&A. and high-yield loans were making the bulge bracket firms nervous enough that they started poaching his staff. Jimmy Lee and Chase's balance sheet were a formidable combo, though some clients were not always sure where one began and the other ended.

"Jimmy saw the wisdom of what we were trying to do, and he tried to help us," said Mr. Forstmann of a recent deal that Mr. Lee and JP Morgan Chase worked on with him. "He didn't do anything wrong. Can I truthfully say that he himself got it done? No. But I can truthfully say that the bank was a significant part of getting it done, and he was a significant part of the bank."

In April 2000, he graced the cover of Forbes magazine, suspenders and all, in an article that dubbed him the new Michael Milken. Mr. Lee was horrified, as was his boss, Mr. Harrison: Yes, he knew he was good at what he did and yes, he was willing to put himself out there to promote the bank and its business, but Michael Milken was an indicted criminal, after all.

However, some Chemical hands remember that the bank's syndication desk on the fourth floor of 270 Park Avenue, before the Chase merger, was shaped in the form of an X, a la Mr. Milken's in his Beverly Hills office. A J.P. Morgan spokeswoman responds that this was not the case.

All the same, he seemed to be turning into a cartoon figure, a Gordon Gekko caricature of an investment banker. It just wasn't him, he complained to friends. So he began his retreat. The heavy lifting was done, Chase sat atop all the loan tables, there was no need for any more P.R.

A few months later, Chase announced its acquisition of Geoff Boisi's Beacon group, and Mr. Harrison put Mr. Boisi in charge of investment banking at Chase while Mr. Lee announced his intent to spend more time with his family. Soon after followed the JP Morgan merger, and Mr. Boisi, together with Mr. Layton, took charge.

"I think it would be fun to run a bank one day," he said to an American Banker reporter back in 1992. But those that know Mr. Lee insist that today he has no such interest. He stays above the drudgery of bonus cycles and other administrative burdens, he gets to watch his son play hockey. And last year he was paid more than $30 million in cash and stock to stay put.

Others counter that the leopard does not so easily change his spots. Said one former colleague, "Someone at Chase once said, Jimmy is like a crocodile: He sits there with his eyes just a bit above the water saying, oh yeah, come just a little bit closer ."

Now, however, Mr. Lee seems a different man-more comfortable in his own clothes. Gone are the suspenders, replaced by a yellow sweater vest that seems more in the spirit of Mister Rogers than Jimmy Lee.

The flash and dazzle are still there: He loves chumming around with Jack Welch, he sits on the board of DreamWorks, and over the past seven years or so he has been the only banker invited to Herb Allen's media mogul fest in Sun Valley . But, he told the audience at the leadership conference, the restless striving has stopped.

"I've learned something about myself," he said. "Leadership is an acquired skill. I've realized a that it is not about the guy with the most clubs in the bag. It's not how good your slapshot is-it's all about determination, hard work, and believing in yourself."

It also raised the question of Lazard's survival as a 152-year advice-giving house. The Rattners and the Rohatyns (Steve and Felix, Lazard legends both), keepers of that suave little flame, have fled, replaced by a slew of perfectly capable, if not decidedly middle-brow and anonymous bankers. They are more than willing to offer advice. But who's asking?

Mr. David-Weill wasn't admitting it, but, stripped of its great men, Lazard had become irrelevant. In the boomtown economy and its aftermath, it was volume and heft, not cachet and European charm, that got business done.

So the 69-year-old Mr. David-Weill (or " Daveed-Vay ," as they refer to him in the Seventh Arrondissement), went in search of a slugger. Time-traveling back to the 1980's, he cast his lot with the biggest macher he could find, Mr. Wasserstein, who he hopes will be more Barry Bonds than Jose Canseco.

Lazard declined to make Mr. David-Weill or Mr. Wasserstein available for comment.

The situation at Lazard is indeed dire. The infighting among partners in Rockefeller Center, London and Paris had grown all the more internecine, and the firm's plunge in the mergers-and-acquisitions tables had become precipitous. The Morgan Stanleys and Goldman Sachses, to say nothing of the new banking leviathans like Citigroup and J.P. Morgan Chase, with their hordes of advice-giving bankers and heaps of capital, were quite simply eating Lazard's lunch.

The 53-year-old, Brooklyn-born Mr. Wasserstein would be the perfect counterpoint to the haughty, reserved Mr. David-Weill, who had inherited his partnership from his father-who had inherited it from his own grandfather, a cousin to the founding Lazard brothers. Mr. David-Weill became chairman in 1977 and, since then, has done little more to justify his and his family's annual $100 million cash take than play a masterful hand of court politics.

Mr. Wasserstein, who will formally take the reins in January, is already making appearances in the London and New York offices, declaiming that the age of politics is over and that now it's all about clients, clients, clients. He is surely harking back to a more halcyon time for Lazard in the early 1990's, when the one-two punch of Felix Rohatyn and his shiny young protégé, Steven Rattner, reeled in all the big media deals: ITT and Warner Communications for Mr. Rohatyn; Viacom-Paramount, AT&T and Comcast for Mr. Rattner.

Debonair, worldly, multi-lingual, with their uptown salons, Democratic politics and civic and artistic zeal, the two were a zesty antidote to the greed-is-good 1980's-era banker that, ironically enough, Mr. Wasserstein himself came to symbolize. Yes, they were ambitious and tough, but in a fine European way that hid the rougher edges of their swagger. It was banking with a certain style and politesse, a mystique which just happened to conjure up multimillions for the firm and all who dipped into its magic hat.

Now they and their ilk are gone, fed up with the Byzantine Lazard structure and the waning influence of a once-storied name. Which leaves Mr. Wasserstein, the original in-your-face M&A banker, ready to leverage that Continental sensibility once again.

Can he do it? The 1980's are but a memory, and Mr. Wasserstein has burned a few bridges along the way. He's also spent the last few years aspiring to be Steven Brill, reporter of the big deals ( The Daily Deal) , a diversion from deal making itself. And he's missing his old partner, the smoother Joe Perella, who helped Mr. Wasserstein achieve his greatest glories (Mr. Perella is now at Morgan Stanley).

Most important, what he most needs is what Lazard now sorely lacks: star bankers.

"The problem with Lazard is that it has always had a great-man strategy," says Kim Fennebresque, the president of SG Cowen Securities and himself a former First Boston and Lazard banker. "Because they don't offer capital; what they really offer is the advice of great men. They have always had an extraordinary stable of such men. With Felix at the top, Steve Rattner, Ken Wilson [now at Goldman Sachs], Ira Harris [now a banker for the Pritzker group in Chicago]-the list goes on and on. They have been able to sell themselves and their position in the commercial world, as well as the quality of their advice. When you lose all the great men, it becomes a problem."

So out comes the Rolodex, and it is quite the legendary one; Jerry Levin, Mel Karmazin and Sandy Weill will surely return his calls. And if his magic touch returns, some Lazard veterans suggest that Mr. Wasserstein and Mr. David-Weill may well agree to sell Lazard off. It's always been bid-'em-up Bruce's greatest talent-knowing when the top has arrived, and then selling out. He has gotten his clients to do it, and most famously he has done it himself, when he sold his rump Wasserstein Perella banking boutique in September 2000 to the Germans at Dresdner Bank for $1.37 billion. His personal take: $600 million–plus.

Periodically, over the past five years, a number of suitors have flirted with buying Lazard, including Deutsche Bank, HSBC and most recently Lehman Brothers. But Mr. David-Weill, prideful of his position as the emperor of his small fief, would never sell out-much to the consternation of his partners, many of whom were eager to cash in their chips.

Now, with the brain drain of top talent continuing-Mr. Rattner took three partners with him when he quit in February 2000, and many others have decamped to the larger firms in recent months-and Lazard's standing in the market eroding, some observers are saying that bringing in Mr. Wasserstein is window-dressing before Mr. David-Weill makes his final sale.

"Hiring Wasserstein was a short-term solution," says a rival banker. "What Lazard really needs is a partner. It needs to be bought by, merged into or teamed up with someone else. And that company is likely to be Crédit Agricole."

Quelle horreur , all the old-school Lazard partners must be shuddering. The sprawling French banking group owns a large indirect stake in Lazard-Frères, and as it prepares to go public, is flirting with the idea of grafting Lazard onto itself to lend a bit of panache to its stolid, unexciting base. But for such a storied banking franchise to be even considering selling out to a bank that caters to French farmers-well, it seems just a bit déclassé. Which is why Mr. David-Weill so desperately needs Mr. Wasserstein to refill Lazard's fortunes.

Smart Guy

From Day 1 in 1977, when the then-29-year-old Mr. Wasserstein was hired by Joe Perella as a junior mergers-and-acquisitions banker at First Boston, he has used his brains and his bluster to cock a snook at the traditions and mores of old-line Wall Street banking. From the early days, he has always been the smartest guy in the room (he entered Harvard Law School at the age of 19, and graduated both the law school and Harvard Business School, where he was a Baker Scholar, according to the back cover of his book, Big Deal )-and he has never been shy in letting his peers in on the secret.

Whether it was his stiff, old-line bosses at First Boston in the 1970's and 80's, or the deal-making competition at Morgan Stanley and Goldman Sachs in the 1980's and 1990's, when he and his partner formed Wasserstein Perella, Mr. Wasserstein has always been a boardroom interloper, a deal-making arriviste.

Mr. Wasserstein was the prototypical 1980's deal maker, a super-achiever who sold advice and counsel not on the basis of club ties and business relationships, but on something more powerful and intoxicating: an ability to inflate not only the self-worth of his clients, but the price that they would pay to close the deal. You need this deal, you need me and you need to pay the price if you truly want to be a global player, he would say.

To be sure, it was not the Rohatyn or Rattner style of advice-giving. But whether it was Robert Campeau (who bid on Federated stores), Jerry Levin (who bid on Warner Communications) or Ross Johnson (who most famously bid on RJR Nabisco) looking across the table at this brassy, frumpy Brooklyn guy with his glasses, bad suits and steel-trap mind, that client inevitably thought, Yeah, Bruce is right, this is my time to shoot for the stars . So they would mainline junk-bond debt and make their play, paying Mr. Wasserstein hundreds of millions in fees for the benefit of his wisdom.

While fellow 1980's legends Mike Milken and Ivan Boesky flamed out, and the likes of Henry Kravis got stuck in a rut, Mr. Wasserstein kept on reaching for more: a 26-acre estate in East Hampton, a palace on Fifth Avenue, a book (the aforementioned Big Deal , from Warner Books), a second, French-speaking wife and his own newspaper, The Daily Deal .

And now a seat at the table with Michel David-Weill and a mandate to radically overhaul what remains-even after the merger of the three banking factions in New York, London and Paris in March of 2000-a house divided. While giving Mr. Wasserstein the carte blanche to remake the firm, Mr. David-Weill has retained within his quiver one last arrow to defend his shrinking sense of self: veto power over any possible merger.

"Michel always recognized that the firm had to be relevant to be successful," says a former Lazard partner. "The question is whether, today, relevance equals financial success."

Nevertheless, to a large extent the future of Lazard will rest in the hands of Mr. Wasserstein, who is said to have invested more than $100 million of his own money for a 10 percent stake, making him the second-largest individual investor after Mr. David-Weill. It's a big stake, one that may be sending a message, too: The Daily Deal aside, Mr. Wasserstein is first and foremost a banker, and he's ready for his next act.

It could well be his most difficult one. Since hitting the jackpot in January 2000, when Wasserstein Perella advised Time Warner on its merger with AOL, his deal momentum has slowed. Joe Perella is gone, and 151-proof Bruce had become just a little too much for clients.

"Bruce became a little radioactive," commented one rival banker. He was also involved in a bitter fight with his Dresdner bosses, who, subsequent to being taken over by the German insurance giant Allianz, quashed Mr. Wasserstein's dream of taking Dresdner Kleinwort Wasserstein public under his executive leadership.

It would have been a classic double-dip: $600 million or so for the sale, followed by many millions more from the public offering. Now, with his Lazard stake, Mr. Wasserstein may well be setting up for that elusive second splash.

No doubt about it, Bruce Wasserstein will get even richer off this deal. But Mr. Wasserstein is quite obviously searching for something beyond lucre. It's a new proving ground, and Mr. Wasserstein still has a few points to lay down.

Wasserstein's Waterloo?

It is indeed something of a cliché to say that Mr. Wasserstein is not a great leader of men. Even within his eponymous boutique, turnover was always high, as one banker after another burned out on Bruce. Now he faces a management challenge-uniting three disparate banking factions in the midst of a steep market downturn-that would make Sandy Weill blanch.

He will certainly have to cull from the significant ranks of overpaid, underperforming Lazard partners. As any rival banker will tell you, most of these guys are just not pulling their weight. They had lost, to use Mr. David-Weill's favorite word, their relevance. So Mr. Wasserstein's toughest trick might well be finding a new generation of relevant men that C.E.O.'s want to listen to-a new crop of Henry Kravises, Joe Perellas, Eric Gleachers, larger-than-life figures, today's Barbarians at the Gate.

But, simply put, there just are not that many great men left. And the ball-busting, pump-and-dump M&A mores that still define Mr. Wasserstein may not wash in today's more institutionalized banking climate.

When you mix in what is probably the worst deal-making environment in a decade, Mr. Wasserstein may be marching into his Waterloo.

"Bruce is a great man, a man of insuperable intellect, and he is extraordinarily commercial," says Mr. Fennebresque of SG Cowen Securities. "But the problem is that Wall Street has changed. If any man can bring back the great-man strategy to Lazard, it's Bruce-but the question is, are there any great men left out there? Because in the end, there really is nothing else to offer at Lazard than the intellectual capital of the partners themselves."

mounted a podium at the Millennium Broadway Hotel in Times Square and started

in on a speech to a hall packed full of investors. The host was J.P. Morgan,

and Mr. Levin-fresh off the company jet from business in China, and then the Harry Potter premiere in London-was

earthtone-attired in post-merger AOL Time Warner wear: a tweed jacket, thick

denim shirt and slipper-like suede shoes.

Mr. Levin-a suit-and-tie man if ever there was one-may well have

embraced the casual AOL Friday culture, but the message he had for the investor

community that day was not the message that had been previously coming from the

world's largest Internet company.

He spoke softly into the microphone. AOL Time Warner, he said,

"operates as a public trust as well as for our shareholders. I will provide

whatever resources necessary to CNN, NY1, to all the magazines; I will do

whatever it takes. And I'm not interested in hearing what happens to margins

with respect to these expenses. Things," he said, "have really changed."

He then paused and said:

"And it is a profound change."

The rest of Mr. Levin's presentation was skewed heavily towards

Time Warner's upcoming film slate: Harry

Potter and the Sorcerer's Stone was positioned to be a smash, Ocean's 11 had massive star power, and

Jim Carrey was going sentimental in The

Majestic . In terms of growth in its other businesses, like advertising,

subscriptions and AOL itself, there was little guidance given. Mr. Levin

focused on content, on responsibility and on service. The message was clear.

For any investors who were confused, Mr. Levin's message was: It's a new world, and AOL Time Warner has a

new mission-get used to it.

"I'll keep using this phrase 'public trust,'" Mr. Levin said

after his speech. "It was like that at Time. I'm the C.E.O., and this is what

I'm going to do. I don't care what anyone else says."

Gerald Levin, who about two years ago agreed to have his company

taken over, has done what Gerald Levin seems to do: He took over the takeover.

A philosopher-prince of the American media establishment, he was certain of his

function in the new universe, a fact that was confirmed by the vast events of

this autumn. Before Sept. 11, AOL Time Warner was a media monster trying to come to terms with its post-merger persona.

Following the events of Sept. 11, AOL Time Warner was no longer an Internet

company. It is now what it originally was in 1923, when another man on a mission-Henry

Luce-slapped together the first issue of Time

and began selling punchy, character-driven stories to an American public

starved for concise information, jaunty attitude and the embodiment of a

revolutionized age. When Time Inc. merged with Warner Bros. in 1989, the great

mythologizers of the media merged with the mythmakers. With the addition of CNN

and eventually the AOL deal, the power of the company became its ability to

report, create, tell, analyze and deliver the American story globally as no other

entity can. And as the Internet dissolved into the rest of the media-and was

financially and culturally brought down to size as just another delivery

system-the great storytelling company became more Time Warner AOL than the

other way around.

And after Sept. 11, Gerald Levin had an immediate perception: His

company had the capability to report, create and deliver the American story at

a moment when it was needed more than it had ever been.

His ability to comprehend and oversee those parts of the company,

from news to entertainment, made his the

cultural influence on AOL Time Warner-not chairman Steve Case's, not co–chief

operating officer Bob Pittman's, but Gerald Levin's. Coming up on the two-year

anniversary of what was once perceived as the AOL hijacking of Time Warner, the

62-year-old Mr. Levin is driving the monster. At the time of the merger, those

who knew Mr. Levin warned the uninformed not to underestimate him. And they

were right. He had a focused perception of his company's strengths, and now

he's using them.

As in the conciseness of this statement at the J.P. Morgan

conference: "I like movies," he said. "And now, what is most important to

people, besides news and information, is storytelling." It was as though Luce

had become a Warner brother.

Mr. Levin, as well as all

other AOL Time Warner executives, declined to comment for this story,

but the Jerry Levin revival shouldn't come

as a surprise. He is the great boardroom survivor of his era. In the early

70's, he was a young cable executive running HBO for Chuck Dolan. He ended up

at Time Inc. when it took over the company, while Mr. Dolan, his boss and HBO's

founder, landed in the Long Island suburbs with a few thousand cable

subscribers. Somehow, the diminutive, sometimes bemused-looking Mr. Levin

outlasted them all.

Now Mr. Levin is lopping off more corporate heads, as he's been

doing for more than a decade now. He ran roughshod over Warner Bros.'

management in the early 1990's; in 1992, he fired nine directors on his Time

Warner board; and in the past year, he's nosed down the khaki-clad AOL Internet

interlopers from Dulles, Va. Some executives see a little bit better in a dark

time, and Mr. Levin is one of them.

He has endured difficult times in the past, which may have

steeled him to keep his head: He lost his 31-year-old son Jonathan to a

murderer four years ago. On another plane, he lost $100 million in a 1994

investment in interactive television in Orlando, Fla. And as a man who has

fired hundreds of employees over the years, he understands the value in

dispensing the ugly truths. His attitude is in sharp contrast to the giddy,

boomtown-growth promises that AOL executives became schooled in making to

investors. Mr. Pittman and his chief financial officer, Mike Kelly, both from

AOL, talked a silky-smooth game to Wall Street-$40 billion in revenues, 30

percent growth in cash flow, etc., etc.-but they were the last pixilated

Panglosses of the Internet era, and their exuberance was junked after Sept. 11.

Earlier this month, Mr. Kelly was removed from his corporate post

in New York and rotated back to AOL headquarters in Dulles, a few days after a Wall Street Journal article had him

yelling profanities at two high-profile Merrill Lynch analysts who had

downgraded AOL Time Warner stock. His replacement, Wayne Pace, is a Time Warner

man.

And this August, Glenn Britt, an almost 30-year Time Warner man

and longtime associate of Mr. Levin, was named the chief executive of Time

Warner's cable unit. Before that, WB Network founder Jamie Kellner was given

Turner Broadcasting Systems. "I have a habit, and this will continue, of making

constant changes with people," Mr. Levin said on Nov. 9. "Like some managers

like to change margins; I like to change

people." Cross-fertilization, Mr. Levin calls it, and now with a

distinctive Time Warner aroma.

"If you look at all the big job changes, they have all gone to

Time Warner people," said one senior investment banker. "Jamie Kellner, Glenn

Britt … they didn't bring in AOL people for any of those positions. And then

there's Mike Kelly. You can argue that has been a failed attempt at

cross-fertilization." More and more, it seems, the competition with AOL seems

to be shifting in favor of Time Warner executives. And it happened just as Wall

Street awoke to the fact that the pie-in-the-sky promises made by AOL were not

going to happen.

That's not news: In a brutal media recession, many companies

downgrade their growth forecasts. But Mr. Levin took another approach. When a

company refers to itself as a "public trust" and suggests that the exigencies

of its corporate mission may well supersede its commitments to shareholders, it

steps onto another plane. Somehow, Mr. Levin summoned enough nobility and

gritty pomp to exalt his company's purpose. It's a message that could only have

come from a tough executive steeped in his company's tradition. He looked at

AOL Time Warner and chose to promote service, integrity, uplift-all at odds

with the narcissistic message of the "You've Got Mail!" revolution.

Not that Mr. Levin's statement of a public trust is

self-sacrificing.

"Now that the Internet stuff has proven to be fiction, Jerry and

the Time Warner people are going back to the businesses that make money," said

one senior investment banker familiar with the inside workings of the company.

" Harry Potter will make money, music

will make money, cable will make a shitload of money, as will Turner and WB.

This was a great company. For the AOL guys to come in and say 'We are the

future of media and you guys are old news' irritated a lot of people. Now

people are saying, 'You know what? There is no such thing as Internet

advertising.'"

Nevertheless, AOL's cash flow-expected to be $3 billion this

year-is nothing to sniff at.

Two years ago, it all seemed so different. In late 1999, when Mr.

Levin and AOL C.E.O. Steve Case started batting around ideas, Mr. Levin was

under pressure from the Street to develop an Internet strategy. Time Warner had

stopped growing, and more than needing a growth injection, Mr. Levin needed a

crew that could sell Wall Street on the idea of infinite growth. Mr. Case,

along with his president, Mr. Pittman, and his C.F.O., Mr. Kelly, had done this

brilliantly, producing one whiz-bang growth quarter after another. Investors

bought the message, shooting the AOL stock from $2 in 1997 to $91 and change by

January 2000. That was seductive to Mr. Levin, then Time Warner's C.E.O., whose

relationship with Wall Street had always been fraught with assorted tensions.

Despite cable growth, Time Warner was burdened with billions in debt and could

never produce the AOL-style triple-digit growth rates that left traders and

fund managers wet with joy. So Mr. Levin cast his lot with a bunch of

fortysomething Internet wizards-much as he'd done in 1989, when he gambled on

his ability to survive with smooth-talking Warner boss Steve Ross.

Throughout much of 2000 and 2001, Mr. Pittman, named co–chief

operating officer with Time Warner's Richard Parsons, was AOL Time Warner's

primary voice when it came to wooing the Street. Responsible for the company's

growth engine, subscription businesses such as magazines, cable and AOL (Mr.

Parson's brief covered content, such as films and music), Mr. Pittman sold the

product. Forty billion in revenues for

2001, I promise, he assured all who questioned how this great beast of a

company could grow its cash flow at 30 percent in the midst of the biggest

media recession in over 10 years.

His C.F.O., brash, forceful Mr. Kelly, echoed the same mantra.

But even before Sept. 11, it had become clear that AOL, with its maturing 32

million–strong subscriber base, just couldn't grow as fast as it once did.

Growth was leveling off and advertising was down. Like General Electric,

Wal-Mart and other great American companies, AOL was not immune to a recession,

contrary to Mr. Pittman's assertions. When the company announced its

third-quarter results on Oct. 17, it became more evident that the growth trend

was downward. There would be no $40 billion in revenues and no 30 percent

growth in cash flow. At $37, the stock is well off its 52-week high of $58.

"This is a company that historically has had a grand notion of

its growth rate," said Doug Kass, a hedge-fund investor who's been an active

and vocal short seller of the stock. "Levin recognizes now that there is still

a pre-bubble mindset amongst AOL executives, and what he is trying to do is

graciously bring expectations in line with a post-bubble world." Not that Mr.

Pittman's position within the company is in jeopardy-his infighting skills

remain strong. For example, while Mr. Britt, the new cable C.E.O., may be a

Levin guy, Thomas Baxter, formerly of the cable company Comcast, and John

Billock, from HBO, are Bob Pittman men. With Mr. Case having removed himself

from any day-to-day operating responsibility, Mr. Pittman remains the most

senior and powerful of the AOL executives-responsible for over 70 percent of

the firm's cash flow.

Beneath him are a series of hard-charging fortysomething deal

makers: David Colburn, head of business development, an entertainment lawyer

responsible for AOL's banner-ad deals; Ken Lerer, in charge of communications,

formerly a New York magazine writer

and AOL's primary P.R. consultant; Barry Shuler, C.E.O. of AOL and the online

maven.

These four men, together with Mr. Case, made AOL what it is

today, and in the woozy days of the merger in January 2000, they not only

landed the peachiest of positions, they came to symbolize the young,

aggressive, deal-driven ethos that had allowed AOL shareholders to assume a 55

percent majority stake in the company. Throughout much of this year, however,

all have been big sellers of AOL Time Warner stock. Mr. Colburn has sold

roughly $8 million; Mr. Lerer, about $20 million; Mr. Pittman, some $55

million. Mr. Kelly has sold almost $15 million and Mr. Case, almost $120

million. And the selling could well pick up in January, when the last batch of

pre-merger AOL options vest.

Mr. Levin, on the other hand, has sold not a share during the

same period. Indeed,  outside of charity

and tax purposes, Mr. Levin has sold hardly any stock at all during his time as

C.E.O.-a fact that, with his tortoise-like, take-the-long-view perspective,

distinguishes him from his AOL co-workers, as well as from the Street as a

whole. Let the kids sell out; now is the time for gravitas and grown-ups, men

whose riches span decades, who can give ease and comfort to a board of

directors.

Which is why many AOL Time

Warner–ologists say the grip that Mr. Levin, along with the 53-year-old

Mr. Parsons, has on the company's reins is getting tighter by the day. "Pittman

is a great guy and a great manager, but when it comes down to it, his job is ad

sales," says one banker. "The guys who are really running the business now are

Parsons and Jerry."

"We are cautious on the banks," Mr. Mayo said. "More and more, we see them relying on hot money for their funding-and what's more, they have more than $1 trillion in risky, potentially bad loans off their balance sheets."

Short and peppy, with a crooked smirk of a smile and hair cut stylishly short, the 38-year-old Mr. Mayo cut a funny figure among the analysts sitting together in the St. Regis Hotel's swanky Versailles Room. He wore a sparkly orange Hermès tie, and viewed from the audience gathered for a two-hour session on bank and insurance stocks, he had the look of a young Danny Thomas-or as he described himself, "You can't miss me; I'm an ugly version of Tom Cruise."

But the message Mr. Mayo came to bring-the one he's been spouting for years-was far from funny, either to those in the room or to the thousands of New Yorkers in the banking and insurance industries.

The markets are getting crunched, investors are panicky, and Mike Mayo has a sell rating on 16 of the 35 stocks he covers-a ratio in sharp contrast with the sell-ratings figure of 3 percent that currently prevails on the Street.

Pessimism and skepticism, the great attitudes of past bear markets, are making a comeback, and Mr. Mayo-who wields a sell rating like his fellow bankers wield a cell phone-is suddenly front and center.

He's the analyst to watch and listen to: the Henry Blodget of the moment, bringing to the banking and insurance industries the kinds of ratings that can send stocks spiraling downward, in much the same way that Mr. Blodget once sent them soaring.

A darker, more cynical mood prevails on Wall Street these days. As The New York Times reported, Mr. Blodget, Merrill Lynch's effervescent Internet analyst gone off to write his memoirs. And now Mr. Mayo is perfectly placed-the anti-Blodget if ever there was one.

Mr. Mayo is not writing his memoirs. In fact, his approach to the moment is to don a green eyeshade and search out the bitter accounting truths of the companies in investor portfolios.

Forget about schmoozing with chief executives or putting a buy rating on a company to grease the investment-banking wheels. Geekdom is in. Better to know for yourself the hard, cold numbers than to trust the corporate sleight-of-hand that has left many a happy, enthusiastic investor regretting that he or she didn't take their eyes off the cheerleaders and watch the players more closely.

For almost 10 years now, Mr. Mayo has been peddling that very investment philosophy. With a mathematics degree from the University of Maryland and an M.B.A. from George Washington University, Mr. Mayo came to Wall Street in 1992, following four years as an analyst at the Federal Reserve. A product of the Maryland suburbs, he was intrigued by the flash and dance of the Street. He was always a smart kid; now he would get paid for it.

After spending some time as a junior analyst at the Union Bank of Switzerland and Lehman Brothers, he moved to Credit Suisse First Boston in 1997, and soon began polishing his contrarian tone. The culmination was his famous call in 1999 when, as a senior bank analyst at CSFB, he recommended that his clients sell bank stocks across the board.

The bull market was still in full force, and sell ratings, especially on high-profile bank stocks, were mostly unheard of-especially at CSFB, which had banking relationships with many of the companies on Mr. Mayo's sell list. Yet, sure enough, the banks crashed. Mr. Mayo, however, got little thanks for his call.

While there were those who appreciated his blunt views, the banks on the receiving end were less enamored-to say nothing of his employer. So when CSFB merged with Donaldson, Lufkin and Jenrette in September 2000, Mr. Mayo and his team of analysts were fired. Ranked No. 2 by Institutional Investor magazine, Mr. Mayo was replaced by a lower-ranked D.L.J. banking team.

By all appearances, it seemed that another analyst was out because of an unpopular-though correct-call.

(The Securities and Exchange Commission is already investigating CSFB's tech-banking, research and public-offering practices, and the recent case of CSFB media analyst Laura Martin, who was fired a month after she downgraded her entire range of stocks following the Sept. 11 attack, suggests that bankers and analysts continue to butt heads. Earlier this year, CSFB brought in John Mack as its chief executive, partly to shore up the Chinese wall between analysts and bankers.)

But though Mr. Mayo may have been a martyr, the ignominy of being out of a job still looms large in his mind.

"It was very scary," he said, digging into a cold chicken platter after his luncheon presentation. "I was ranked No. 2 by Institutional Investor in two different categories. I'd reached the highest level of my career, and all of a sudden I couldn't find a job." So he settled in at his Upper East Side apartment and put in calls to everyone he knew-friend and foe. No interest.

Despite being interviewed by all the major firms, not one offered him a lifeline. "They would say to me, 'We want to make sure that you are mature in how you approach companies,'" he recalled. "With 'mature' meaning 'Can you make friends with management?'"

Indeed, there had always been criticism leveled at Mr. Mayo for proclaiming, perhaps a bit too loudly, his antipathy for, say, a Bank of New York Company Inc., a Bank One Corporation or a J.P. Morgan Chase & Company. Brash and not a little bit preachy, Mr. Mayo had a way of sticking out from the pack, and not a few of his peers saw his schtick as self-serving. Not surprisingly, Morgan Stanley and Merrill Lynch didn't rush in with offers. In a market still in love with itself, Mr. Mayo's act had become stale.

So Mr. Mayo played Mr. Mom, taking his 5-month-old daughter to music class in Manhattan-"just me, my daughter, six nannies and two mothers," he recalls-though he was still plugging away on the phone.

Finally, in February, a break. Prudential Securities, in an effort to cut costs and differentiate itself from the bulge-bracket firms, had fired a good chunk of its investment-banking staff and announced that from here on in, its research would utilize the sell rating on a more frequent basis. Indeed, there was no need for Prudential to brag of the wall between research and banking, because the firm had few real bankers to speak of.

Mr. Mayo and his five-strong team of analysts had suddenly found not only a home, but also a market environment more conducive to their damn-the-bankers style of research. "I was hired to be a role model," Mr. Mayo said. "To be a catalyst, to show how you can use an unbiased research strategy. My main goal is to make investors money with my recommendations, but I also want to make it easier for people to use sell ratings."

He didn't waste much time. First came the Bank of New York, which was trading at $47 in mid-March. Mr. Mayo slapped a sell rating on the stock, even while the vast majority of his peers maintained buys. It now trades at $39, after hitting a low of $30. Then came J.P. Morgan Chase. Mr. Mayo put a sell on it in May, when the stock was in the high 40's. Now the stock changes hands at around 39, off a recent low of $29. Yet despite the support of his firm and a Street environment admittedly more receptive to sell ratings, the going remains tough.

"I'm still getting beaten up. It's like getting punched about 10 times," he said. "'You have not done your homework,' they say. 'You're doing it for P.R.'" While the companies that Mr. Mayo follows pretend to tolerate him, they also go out of their way not to help him, refusing to answer his questions on conference calls and limiting his access, he said. But with the continuing application of Regulation F.D.-an S.E.C.-imposed ruling that prevents companies from doling out private information to privileged analysts-lack of company cooperation matters little. Mr. Mayo said that he and his team just burrow all the deeper into the regulatory filings.

Mr. Mayo has also found that company cooperation matters even less in a dicey market. "Management does not telegraph when something is going to go wrong," he said. "'You don't know what you're talking about,' they'll say. Ironically, I've found that whenever a company fights me the hardest, that's when they're having the most problems."

This is all well and good for Mr. Mayo's reputation as a contrarian, but whether or not a sell-first-ask-questions-later research strategy can be a money-maker for a securities firm, even in a bear market, is still very much in doubt. It's a well-known fact that research staffs at all the major banks lose money; investment-banking fees are how the banks earn their billions. So how will tiny little Prudential make money off Mr. Mayo?

Probably with some difficulty. "Our pitch is, 'Please, Mr. Investor, reward us for our effort, because it takes three times as much work to do [your] research by independent means than to get it spoon-fed by management,'" Mr. Mayo said.

Every day now, Mr. Mayo calls down to his traders to get an idea of how much trading volume they're doing in bank stocks. "We've got momentum," he said, "but we need to see more of it."

And so what if he's become a little bit obsessed? Asked what hobbies he has, Mr. Mayo thinks a bit, but can't really come up with an answer. "I did do a 1,500-page report on the banking sector a few years ago, to let people know that I really know what I'm talking about," he said.

Would that count as a hobby, then? "Well, I do like to read philosophy-though it's been years [since] I've read that kind of stuff," he said. "So, yeah, I guess you could say that my job has been my hobby."

For the moment, Mr. Mayo may well be Wall Street's top geek. Which is the way he's always wanted it. "It's nice when the style of research you've always practiced comes back into vogue," he said.

"If the 2002-2003 period is as bad as prior reported declines, the worst case is that these stocks could fall 25 to 30 percent," she wrote in her Sept. 19 report.

Coming so soon after Sept. 11-and at a time when the market was in a deep slide-her call made a big impression on all but the stocks themselves, which already were in decline. But a little over three weeks later, Ms. Martin was out of a job.

Hundreds of other CSFB employees were let go that day, Oct. 12. But those hundreds of others were not well-respected, highly compensated, high-profile analysts, as the Pasadena-based Ms. Martin was. Just five days later, on Oct. 17, the 43-year-old analyst was given a third-team ranking by Institutional Investor magazine for the second year in a row, a sign of confidence by money managers from all over the country who were polled.

Officially, Ms. Martin was a victim of CSFB chief executive John Mack's attempt to bring the firm's high costs into line. But those close to Ms. Martin are saying that her Sept. 19 report was surely a factor in her dismissal.

Ms. Martin was alone in making the downgrade call-one that other analysts outside CSFB were loath to make. And, according to sources both inside and outside the firm, none of whom wanted to be named, Ms. Martin's downgradings had elicited a very strong reaction from within CSFB, from some of its most senior investment bankers-mediainvestment-banking guru Jill Greenthal, to name one. Sources said that bankers tried to talk her out of the downgradings, and some even raised questions about the intellectual underpinnings, as well as the timing, of her call.

A spokesman for CSFB declined to comment, refusing even to confirm that Ms. Martin was among those let go on Oct. 12. Ms. Martin, reached on her cell phone, refused to discuss the matter at all, presumably because a severance package is at stake.

But others close to her said Ms. Martin believes her Sept. 19 report had something to do with her inclusion on the layoff list.

If so, it raises new questions about CSFB's ability to maintain the Chinese Wall, as it is known on Wall Street, between its analysts and its investment bankers. The need to help reinforce that divide is one of the reasons Mr. Mack was brought in to CSFB and why his predecessor, Allen Wheat, was forced to resign.

The Securities and Exchange Commission is investigating CSFB's tech-banking superstar Frank Quattrone and his Palo Alto–based team after questions were raised about their initial-public-offering practices and the allegedly cozy relationship between Mr. Quattrone and his tech research staff.

Coming on the heels of effusive calls by Internet analysts that drove the now-

defunct tech boom, that case has prompted a renewed look at the independence of analysts across the board. Maintaining that Chinese Wall is considered key to keeping investors' trust.

Media Star

Ms. Martin may well have been let go because of her $3 million salary, a large cut at a time when CSFB-like most of the other major investment banks-is struggling to bring down costs. Nonetheless, the events surrounding release of the Sept. 19 report provide a revealing look at the tensions between analysts struggling to make independent calls and bankers anxious to please clients and bring in lucrative banking deals.

Ms. Martin was no novice. She had 18 years of banking experience and was a frequent presence on CNBC and CNN. Because of her position as CSFB's lead entertainment analyst, she consorted with such powerful media leaders as USA Network's Barry Diller, Viacom's Mel Karmazin and Vivendi Universal's Jean-Marie Messier.

A graduate of Stanford and Harvard Business School, she worked on Michael Milken's Beverly Hills trading desk as a Drexel Burnham analyst through 1990. She then moved to the buy side for Capital Research, the prestigious Los Angeles–based investment-management firm, where she became very close with Vanity Fair mover and shaker Gordon Crawford, the most famous media investor in the business.

In 1994 she made the move to CSFB, where she began to cover the media and entertainment industry. While she wasn't as famous as some of her peers-Morgan Stanley's Mary Meeker and Merrill Lynch's Henry Blodget, for example-she did make a name for herself. In October 1998, a Fortune magazine feature on the outstanding female graduates of Harvard Business School's class of 1983 highlighted Ms. Martin as one who opted for the lucre of Wall Street.

"People rarely forget me," she told Fortune . "I'm opinionated-and I don't wear blue suits."

She had a flair for the media life. In an article on Barry Diller in the Industry Standard in July, she was quoted as saying: "Barry Diller rocks and you can quote me on that, baby."

But she was not just flash and zip, as underscored by her Institutional Investor ranking. In the cutthroat world of research analysts, an I.I. ranking can in many cases make the career of an analyst, to say nothing of the millions in bonus cash that immediately accrue.

While Ms. Martin never made the first or second team-those two slots have long been held by Merrill Lynch and Morgan Stanley luminaries Jessica Reif Cohen and Richard Bilotti-her third-team ranking, in probably the most competitive and most observed of all industries, did merit a favorable write-up from the magazine: "Because she has been on both sides of the table (i.e., worked on the buy and sell sides), investors value the intriguing, conservative assumptions and long-term stock calls of Laura Martin."

Sources both within and outside CSFB recreated the days that led up to Ms. Martin's firing. Immediately after Sept. 11, they said, Ms. Martin, who works out of a small CSFB office in Pasadena and lives in San Marino with her husband and three children, started thinking about downgrading her entire universe of stocks. Many of them-Walt Disney, for example-were rated as strong buys. Coming on the heels of a deep advertising recession, Ms. Martin saw the terrorist attacks signaling deeper trouble for those companies in the months ahead.

It was a gutsy call. Not only was it contrary to what her peers were saying, it also defied the nation's mood, which was decidedly pro-American, shaky corporations and all.

"To downgrade your entire sector so soon after Sept. 11 seemed to be in very bad taste," said a prominent media analyst from a rival firm familiar with Ms. Martin's situation. "During those first weeks, there was a message all across Wall Street: Don't downgrade stocks, it's like kicking the country when it's down. We all got the message from our bosses: Don't commercialize this."

But one way to get noticed in an increasingly crowded analyst community is to go against the grain. It's a risky strategy: If you are wrong, it blows up in your face. But if you get it right, in come the precious I.I. votes and the resultant bonuses. Those who know Ms. Martin said she was well aware of the rewards such a good call could bring.

On Sept. 15, the Friday before the markets were to reopen, Ms. Martin called Al Jackson, CSFB's global head of equity research. Mr. Jackson had imposed a week-long ban on all analyst actions, and Ms. Martin was looking for the go-ahead to issue her reports on Sept. 17.

According to a source familiar with the conversation, Mr. Jackson told her it was her call-but with some trepidation. He

reportedly warned her to have good support and research to back up her industry downgrade. Mr. Jackson declined comment. Ms. Martin reportedly assured Mr. Jackson that she had 10-year data and models to back up her call.

On Sept. 17, the markets reopened to a precipitous drop. Viacom and Disney plunged, respectively, 11 and 18 percent, and the cable companies took a big hit. Ms. Martin, however, thought her industry's future was bleaker than that. She planned to go ahead with her downgrade.

Senior research officials within the firm had deep concerns about her call-both its timing and its analytical underpinnings. They nevertheless supported her decision. More likely to be upset, Ms. Martin apparently

realized, would be the firm's investment bankers, who had banking relationships with many of the companies on Ms. Martin's list.

According to sources, on Tuesday afternoon Ms. Martin called managing director Jill Greenthal, global head of media investment banking for CSFB, to give her a heads-up. Ironically enough, Ms. Greenthal-one of the most prominent media bankers on the Street-was a business-school classmate of Ms. Martin's at Harvard and was featured in the same Fortune class-of-1983 article.

Ms. Greenthal declined to be interviewed. But according to sources familiar with the conversation, she had strong reservations about Ms. Martin's rationale for the report. "I'm surprised by what you are doing, Laura," she said, according to those familiar with the conversation. "Particularly on the cable stocks. Your assumptions are wrong, and you could well regret it."

Ms. Martin immediately became defensive, excitable even, those with knowledge of the matter say. She told Ms. Greenthal she wouldn't be bullied out of downgrading all the stocks in her sector.

Ms. Greenthal continued to question Ms. Martin's assumptions, arguing that the cable sector was a defensive one not worthy of a downgrade. Ms. Martin reportedly responded, "Listen, I get paid to be wrong. This is my intellectual integrity. We are not going to sacrifice 1,500 accounts for 10 companies that you guys have relationships with."

Ms. Martin then called all 11 chief financial officers of the concerned companies. All reportedly told her: "Laura, you are wrong."

Ms. Martin also reportedly sent an e-mail to Ernesto Cruz, head of global equity capital markets. She inquired about the state of mind of the media bankers. Mr. Cruz, who declined comment, reportedly told her the damage with Ms. Greenthal was done, and there was no going back.

Unexpected Visit

Until Oct. 12, life went on as usual for Ms. Martin. Her stocks remained flat, and there was no further interaction with New York.

But that day John Hervey, CSFB's director of U.S. equity research, flew in on very short notice to the Pasadena office, arriving at noon with a woman from human resources. Ms. Martin was just returning from a meeting with Vivendi Universal chief executive Jean-Marie Messier at the Universal lot. Ms. Martin was reportedly surprised to see Mr. Hervey, who had never set foot in the Pasadena office before.

Mr. Hervey delivered the news: CSFB was shutting down the office, and everybody there was laid off.

According to witnesses, Ms. Martin was flabbergasted. "Help me understand this," Ms. Martin said, her voice rising. "I'm ranked No. 3 in entertainment this year. I cover two spaces; I would have been ranked in cable if I hadn't given up coverage after the merger. I'm doing global media for Al Jackson. I'm doing three people's work. How are you going to lay me off?"

Mr. Hervey was visibly upset and apologetic, say those familiar with the encounter. But he told Ms. Martin it was a firm decision to pull research back to New York. There was no mention of the run-in with Ms. Greenthal.

Ms. Martin was very emotional, those familiar with the matter say. At 43 years old, with nearly 20 years in the business, she was being told to pack her desk.

Sources said she went on to negotiate a settlement for herself-about 50 percent of last year's bonus, which sources familiar with the talks say was in the area of $3 million. Mr. Hervey also allowed her four weeks to clear out of the office and agreed to let her take all of her intellectual property with her on a CD-ROM.

Ms. Martin, however, managed to get the last word, sending a final e-mail to research associates and other managing directors throughout the firm.

She wrote: "When the head of Capital Research [Gordon Crawford] was trying to keep me from coming to CSFB he said: 'You can't go to the brokerage business; they fire people there.' After seven years, his warning came true. Working with all of you, the best and brightest, has been a privilege and a pleasure. Thanks for seven wonderful years. With great fondness, Laura."

Thirty minutes later, New York disconnected the Pasadena office's e-mail system.

The figure itself is not so unusual. Mr. DiMaio is no obscure trader-he's a division head, running North American fixed income for CSFB. What's more, bankers on the Street, even during these dark bear-market days, can rake in sums above and way beyond that comfortable sum. Mary Meeker, Morgan Stanley's Internet analyst, for example, was known to have collected such a bonus last year.

What is unusual about Mr. DiMaio's salary is that, unlike Ms. Meeker's, his is guaranteed for the next three years. Meaning if Mr. DiMaio's bond business hits the skids next year, or the year after that, he still gets paid his $15 million.

To have a three-year package of that size, in this market, makes for a nice security blanket indeed, and bankers everywhere on the Street have noticed.

It does raise the question, however: With bankers hitting the unemployment rolls and investment-banking firms across the board seeing their margins shrink, can a thirtysomething bond trader really be worth $45 million over three years? Many would say no. But the answer may not be so simple.

By all accounts, Mr. DiMaio is one of the most highly regarded bond guys on the Street. His business is flourishing, and he commands enough loyalty on his desk to have come very close to decamping to a rival firm with 40 or so fixed-income colleagues last February. Former CSFB chief executive Allen Wheat persuaded him to stay by giving him the whopping contract.

Mr. Wheat lost his job five months later, in part because of his generosity. Enter John Mack, the former president of Morgan Stanley, now charged with a mandate to bring CSFB's way-above-the-norm salary structure in line with the recessionary climate that now prevails on the Street.

Mr. Mack-known as Mack the Knife-did not wait long to make his move. On Oct. 9, some three months after he arrived, CSFB announced, amidst plunging profits, that it would be laying off up to 2,000 employees, from secretaries to senior bankers. It was announced publicly after Mr. Mack had informed employees via internal e-mail that imminent and sharp cuts were to be made to costs and personnel throughout the firm.

CSFB bankers are in panic mode, although Mr. DiMaio is certainly not one of them. Every day over the next few months, richly paid bankers at CSFB and beyond will be fired, and many more will see their $10 million bonuses of years past vanish. It's how the boom-bust cycle works on the Street: When times are ripe, you get paid; when times are lean, you don't.

But unlike many of his highly paid brethren in mergers-and-acquisitions and corporate finance, Mr. DiMaio will not be wringing his hands should his business go south. And maybe he shouldn't have to. Maybe he deserves every penny he gets.

Mr. DiMaio and CSFB declined to comment. But some of Mr. DiMaio's peers did, partly because they think his story is an interesting one-and partly because they think he is the rare exception to the cost-cutting rule.

"Everyone in this business is overpaid," said Paul Spivack, head of debt capital markets for emerging markets at Bank of America, who worked with Mr. DiMaio at CSFB. But, Mr. Spivack went on, "his business is having a record year. For people to be counting Jack DiMaio's money without looking at themselves in the mirror, I find that to be outrageous."

In fact, as CSFB's bread-and-butter high-tech business has evaporated, it's been Mr. DiMaio's bond operations that have kept the company's year from being worse than it already is. Unlike tech-banking superhero Frank Quattrone, Mr. DiMaio is a star banker with a business on the rise-and minus a Securities and Exchange Commission investigation, to boot. On the trading desk, it's called having leverage, and Mr. DiMaio currently has a good chunk of it.

All of which creates a problem for Mr. Mack, whose first goal in coming in has been to renegotiate the many top-of-the-market guaranteed packages that Mr. Wheat had doled out. Will Jack DiMaio get a pass? Or will his long-awaited payday be cut short?

Blue-Collar Roots

Born in Bayport, Long Island, Mr. DiMaio has been with CSFB since 1989, a remarkable stint of longevity at one of the most volatile firms on the Street. He started at the bank's equivalent of the mail room, hired as a junior research analyst in the bond department. A graduate of New York Tech, where he was also a star pitcher for the baseball team, Mr. DiMaio's goal was to be a trader, and he spent his early years doing all that he could to get himself transferred to the trading desk.

According to those who know him, he befriended senior CSFB traders and hung out around the desk, watching, observing, and riding the train back with them to their houses in the Long Island suburbs. Indeed, they say, the Long Island native was a trader at heart, having put himself through college by buying used automobiles, fixing them up and selling them for a profit.

In 1990, his efforts paid off and he became a junior trader on the corporate bond desk, where he immediately began to make bucketfuls of money. He made his mark by gaining expertise in the trading of SLOB's-sale-lease obligation bonds, an arcane and little-known sliver of the bond market. Not only was the firm making money, but so were his clients.

By 1993, Mr. DiMaio had made a name for himself and was receiving offers from the likes of Paine Webber and Lehman Brothers. But he stayed put, and by 1996 he'd become the head of the corporate bond desk.

In 1996, the bond ranks at CSFB were shaken up when Bob Diamond, the head of global fixed income, left the firm on bitter terms due to a dust-up with Mr. Wheat. A vacuum within the department soon materialized as the turmoil grew; other executives had already left prior to Mr. Diamond's departure.

Again, Mr. DiMaio was tempted to leave; he had offers in hand. It was only because of the last-minute intervention of Mr. Wheat, who placed a number of calls to Mr. DiMaio's house in Long Island, that he was persuaded to stay, his former colleagues said.

Now he was a player and getting paid as such. Those close to Mr. DiMaio say his salary had reached $4 million or so, and by 1998 his managerial responsibilities had also grown. Calm and focused on the trading desk, he eschewed the Liar's Poker histrionics of the brass-balled bond traders of lore. No strip bars or booze-soaked carousings, either. He had a job to do: make money for the firm and his clients by exploiting the inefficiencies of the market. When the markets closed and he had done his time in the gym, Mr. DiMaio was back on the train to Long Island, where his wife and child resided.

Besides the corporate bond desk, he was also overseeing asset-backed securities, commercial mortgages and real-estate finance. He was the top U.S.-based fixed-income executive for CSFB and was widely recognized on the Street as one of the top bond managers around. And he was still in his early 30's.

In September 2000, just as the tech and junk-bond markets were starting to unravel, Mr. Wheat persuaded his bosses in Zurich to pay $12.4 billion for D.L.J. and its well-paid bevy of high-yield-bond bankers.

To keep those bankers on, many were offered lucrative guaranteed multi-year deals. Mr. DiMaio, whose salary-including bonus-was around $6 million at the time, found himself quickly slipping on the firm's internal salary scale, despite responsibilities that exceeded just about all of the D.L.J. bankers coming on board. In the shuffle, he also got a new boss: Stephen Hester, an investment banker who'd spent most of his career in England and had no real bond experience to speak of.

According to those who know him, it was the last straw for Mr. DiMaio. He had stuck with the firm through its many ups and downs for 13 years. Everyone, it seemed, was getting paid-tech banker and Allen Wheat favorite Mr. Quattrone reportedly made $100 million in 2000-and now a bunch of D.L.J. bankers junior to him were coming aboard with guaranteed packages that dwarfed his own. Mr. DiMaio had always been loyal to the firm; he had turned down numerous offers to leave; he ran a major division for the bank-and he did it all on his own, too. It seemed time for him to get his due.

"No one gave Jack anything," said Mr. Spivack. "He didn't go to Harvard Business School; he is not the third member of his family to be doing this."

Sensing his disquiet, his former boss, Mr. Diamond, now the chief executive of Barclays Capital, swooped in with an offer: bring over your 40-man fixed-income team and I will pay you $12 million to $15 million a year, guaranteed for three years. That sounded good to Mr. DiMaio, who was making about half as much at the time, said those who know him.

About Face

So in February, as reported in The Wall Street Journal , Mr. DiMaio walked into Mr. Wheat's office and resigned. But Mr. Wheat-never one to let a star walk away-upped the ante: stay with CSFB and I'll give you three years guaranteed at $15 million–plus.

In the end, loyalty to the firm-and to Mr. Wheat-prevailed, and Mr. DiMaio stayed. While some were shocked at the size of the package, those who knew Mr. DiMaio well saw it as his just deserts.

"There are a lot of qualified guys out there, but how many can deliver the entire fixed-income desk of CSFB?" said Mike Allen of Hawk Global Investment Advisers, a former colleague of Mr. DiMaio's at CSFB. "Jack is just now getting his payday. Some guys don't deserve it when it comes. Jack does."

In July, Mr. Wheat was summarily fired by Credit Suisse chairman Lukas Muhlemann. The Securities and Exchange Commission was well into its investigation of the initial-public-offering practices of Mr. Quattrone's tech-banking team, and with the markets crashing, CSFB's bloated pay scale-by far the highest on the Street, with compensation comprising 59 percent of net revenue in 2000-was becoming a drag on the company's earnings. Mr. DiMaio's would be the last of Mr. Wheat's high-profile guaranteed packages.

According to bankers close to Mr. DiMaio, shortly after Mr. Mack arrived at CSFB's offices in the Flatiron district in mid-July, Mr. DiMaio and a number of other senior CSFB bankers met with their new C.E.O. to talk about renegotiating their guaranteed contracts. Mr. Mack reportedly asked them to tear up their contracts, arguing that the firm no longer could afford them. The bankers' reported response: Forget about it. We signed these deals with Allen Wheat, C.E.O. of the firm at the time. We plan to honor them; so should CSFB.

Which is where the stalemate currently stands. Mr. DiMaio still has his contract, and sources within CSFB say that discussions are ongoing between him and Mr. Mack. And while bottom-line concerns are surely paramount for Mr. Mack, one can't help but speculate that the hard-charging CSFB chief executive might just have a soft spot for Mr. DiMaio.

Like Mr. DiMaio, Mr. Mack's North Carolina roots are blue-collar. He, too, gained his renown as a bond trader before rising through the Morgan Stanley ranks to become president. Like Mr. DiMaio, he also commanded the intense loyalty of his troops.

Which is not to say that Mr. Mack wants to pay Mr. DiMaio $45 million over the next three years. For the time being, though, it looks like he will.

Steinbrenner's new sports station, was on a conference call, oozing his special

brand of confidence and boardroom bonhomie. It was Sept. 10, and he was

announcing the culmination of months of negotiation: the formation of the YES

network, born out of the burgeoning YankeeNets sports empire.

"TheNewYork Yankees are the most legendary team in professional

sports," Mr. Hinderysaid.Then, clarifying a key point about how this new cable

station might prevail, he said, "It is our intention that the YES network be

part of the basic package available to all subscribers."

There it was: a network ready to broadcast 125 Yankee games next

year, a new C.E.O., a plan for success and even office space at the Chrysler

Tower. All that was needed was for the network's two main investors, Goldman

Sachs Inc. and Steven Rattner's Quadrangle Group, to close on their joint $300

million investment.

That seemed to be the easy part: "With this deal, you could say

yes on the phone," Mr. Rattner was quoted in the next day's New York Times .

Yet one week later, after everything else in New York had

changed, the YES deal did, too. On Sept. 17, Yankee president Randy Levine

received a call from Mr. Rattner, Quadrangle's founder and high-profile

principal partner, saying Quadrangle and co-investorAmos Hostetter were

withdrawing their $160 million contribution to the deal. Goldman Sachs then

quickly stepped in, and the deal closed a week later.

But what had happened to Mr. Rattner, the former New York Times reporter, intimate of the

Gores and Clintons and onetime protégé of Lazard Freres legend Felix Rohatyn?

He was an all-star investment banker if ever there was one-the dean of media

and cable investment bankers. Along with three partners from his old firm, Mr.

Rattner had recently reinvented himself as a private equity investor, and they

seemed to be a perfect fit for the Yankees.

Looking back, however, there were hints as early as August-and

certainly as the negotiations dragged on into September-that something was

wrong. According to Mr. Rattner, it was this: He and his partner, Peter

Ezersky, had concluded that Mr. Hindery for one, and the Yankees in particular,

were asking too much of them given the heft of their investment. They objected

to the salary they were paying Mr. Hindery, his expensive and top-heavy

administrative team, the governance structure that had been established and

what they claimed was an escalating rights fee the network would pay the

YankeeNets.

"While no single change caused us to leave, cumulatively they

made the deal significantly less economically appealing," Mr. Rattner said in a

statement. "Combined with an unwieldy and difficult governance situation, the

deal became uninteresting."

To which Mr. Hindery, never one to hedge, responded: "I have all

the respect for Steve Rattner, who has never run a business in his life. All of

these items were budgeted in July, including my own compensation. There are no

surprises here. This is just a guy who does not want to do a deal."

Asked to reply, a Quadrangle spokesman said: "All the parties,

including Leo, have agreed to limit our comments. We prefer to respect that

legally binding agreement."

In the clubby little cable industry, it rarely comes to this.

Certainly, Mr. Rattner, Mr. Hindery and Mr. Hostetter have been doing deals

together for 15 years.

But these are high-profile dealmakers in tough economic times. In

this milieu, china doesn't just crack, it shatters. And so it seems it has

here.

The

finance deal for the YES network dates to May, when Goldman Sachs media

banker Joe Ravitch began discussions with Mr. Levine. The Yankees had finally

cut the cord with their 12-year partner, Cablevision's MSG network.They needed

a new partner.

From the start, Goldman had a C.E.O. in mind: Leo Hindery.

Goldman bankers had worked closely with Mr. Hindery at his various stops as a

top executive at TCI, AT&T Broadband and, most recently, Global Crossing.

Mr. Hindery had become famous in selling John Malone's TCI to AT&T for $70

billion. He was a dealmaker to the bone and, Mr. Ravitch said, always made

money for his shareholders. Besides, he was the perfect Steinbrenner guy:

brassy, in his office by 5 a.m., a world-class race-car driver.

In early June, in a suite at the Regency Hotel, Mr. Ravitch

introduced Mr. Hindery to Mr. Steinbrenner. Sharing Catholic-school upbringings

and baseball buddies, they hit it off. Goldman bankers felt sure they had a

deal.

Numbers were crunched, and the network was valued at $800

million. Goldman was set to invest $300 million for a 40 percent minority stake

through a series of its private equity funds.

But as Mr. Ravitch was working his end, New Jersey Net co-owner

and YankeeNet board member Ray Chambers had entered into discussions with Mr.

Rattner and Quadrangle.

For Mr. Rattner and his three partners-Mr. Ezersky, Joshua

Steiner and David Tanner-the timing was perfect. They would be closing their

first billion-dollar fund in July. High-profile investors included Mike Ovitz,

Harvey Weinstein (who is in talks with the Yankees about joining the YES

board), and cable titans Amos Hostetter and Comcast chief executive Brian

Roberts (both advisory board members). The YES investment would be their

biggest to date, at $150 million, but the potential, they thought, was infinite.

In mid-June, the YankeeNet board was convened at its offices in

Rockefeller Center. James Murdoch, son of Rupert, was there, as well as Mr.

Steinbrenner, Mr. Chambers, and Mr. Chambers' partner and co-owner of the Nets,

Lewis Katz. Goldman Sachs and Mr. Ravitch made their case, highlighting Mr.

Hindery's role as C.E.O. Only he, they contended, could cut a deal with

Cablevision's Chuck Dolan to put the network on basic cable service, a key to

its success.

Mr. Rattner and Mr. Ezersky then spoke. Mr. Rattner's cable guy

was Mr. Hostetter, who was conferenced in from his Boston offices. An

influential AT&T board member, he is the founder of Continental

Cablevision, an original cable franchise, and widely recognized as one of the

cable industry's visionaries. 

At the outset, it became clear that they were not in favor of Mr.

Hindery, people at the meeting said. Quadrangle partners were well aware of Mr.

Hindery's volatile history at AT&T and Global Crossing-both high-profile

jobs with short tenures and a trail of less-than-fond memories. They also saw

the $800 million network as too small for Mr. Hindery's appetites. Their plan

was to close the deal first, make Mr. Hostetter chairman and then find a C.E.O.

The board, impressed with both presentations, pitched another

idea to Mr. Rattner and Mr. Ravitch: We like you both; figure out how to split

the deal.

Immediately, Mr. Hindery's salary came up. YankeeNet chairman

Harvey Schiller got $2 million; Mr. Hindery wanted $500,000, plus $250,000 for

his expenses and his private plane, according to YankeeNet officials. (Mr.

Rattner contends that Mr. Hindery initially offered to decline a salary, which

Mr. Hindery denies.) In addition, he wanted a large administrative staff, some

with salaries of $400,000.

Mr. Rattner and his team blanched. While a $500,000 salary is not

beyond the pale for a TV executive, especially a cable bigwig of Mr. Hindery's

stature, the network was, in Quadrangle's eyes, a start-up, in one of the worst

advertising climates in a decade.

Then there was the fee to be paid to YankeeNets for broadcast

rights, which Quadrangle partners say was increased from the initial amount.

YankeeNet officials say the Yankees fee was always $52 million, while the fee

for the Nets has yet to be decided. But, when added to administrative costs of

some $40 million, it meant $100 million in costs from opening day in March-and

this before even reaching an agreement with the cable companies over carriage,

or meeting with any advertisers.

Tempers flared. Did Mr.

Hindery really need a plane to fly to the Bronx, Quadrangle partners queried?

Mr. Hindery is a world-class executive, Goldman bankers countered.

"Leo is a rock star," said Mr. Ravitch. "This is what you do when

you hire a guy of this caliber."

On several occasions, Quadrangle came close to pulling out. By

then, it had gotten personal. Goldman bankers, meanwhile, attached a provision

that would prevent Quadrangle from firing Mr. Hindery.

But that wasn't the final straw. In mid-August, Mr. Rattner and

his team were told that Mr. Hindery, who already had reduced his stake from $35

million to $15 million for personal financial reasons, had secretly sold off $5

million of it to prospective board member Bill Bresnan. Mr. Hindery denies that

he attempted to sell any such stake. Both sides, especially his Goldman

backers, weren't happy about Mr. Hindery's first downsizing. For him to offload

the rest would be a deal breaker.

"Did we like the fact that Leo went from 35 to 15? No," said Mr.

Ravitch. In the end, however, Goldmans saw the $15 million as "a significant

amount. Our interests are aligned."

His $15 million stake would ensure, bankers hoped, that Mr.

Hindery would fulfill his three-year contract. Nevertheless, Quadrangle bankers

became more wary of Mr. Hindery's commitment.

At one point, the talks became so nasty that Mr. Hindery came

close to walking away, Mr. Hindery confirms. As he saw it, the Quandrangle

partners seemed to be pushing him to do it-a charge they deny. First they made

Mr. Hostetter chairman; then they attacked his salary, expenses and staff. They

were, in effect, saying they didn't trust him.

"It had just become needlessly petty, which was unfortunate,"

said Mr. Hindery.

Last on Quadrangle's complaint list was the YankeeNet insistence

on having Bill Bresnan as the sole independent board director. Mr. Bresnan is a

longtime cable investor and an old friend of Mr. Steinbrenner and Mr. Hindery.

In mid-September, Mr. Rattner and partners also learned that Mr. Bresnan-who is

also a Quadrangle investor-was the father-in-law of Yankee general manager

Brian Cashman.

On Sunday night, Sept. 16, with the deal set to close on Tuesday,

Mr. Rattner called Mr. Levine: Taken with everything else, especially Mr.

Hindery's attempt to lessen his stake, the Bresnan-Cashman link had tipped the

scale. Quadrangle would have to pull out.

Mr. Steinbrenner, the most forceful advocate for Mr. Bresnan, was

reported to be livid. A believer in the power of institutions, he had always

favored Goldman Sachs as sole investor. But he'd agreed to Quadrangle to

appease his new partner, Mr. Chambers.

He knew little about them. Indeed, after an early meeting,

according to one source close to the deal, Mr. Steinbrenner had commented,

"They're nice guys, but as far as I can see, they're just four kids with a lot

of money sitting in an office at Rockefeller Center. I don't know what they can

do for me."

A Quadrangle spokesman noted that the firm's principals have

nearly 60 years of Wall Street, media and communications experience.

Mr. Steinbrenner did not respond to calls for comment.

Neither Mr. Steinbrenner nor Mr. Hindery would budge on Mr.

Bresnan. In their eyes, the Quadrangle partners were looking for an excuse to

get out of the deal.

"It's not as if we parachuted his name in. There were 100 drafts

where he was named as the independent director," said Mr. Hindery.

He added: "Bill Bresnan is my

partner and my friend; I've known him for 15 years. He is Brian Cashman's

father-in-law through four grandchildren; I mean, come on."

Mr. Rattner said, "Bill Bresnan is a wonderful man and would be a

terrific director of any company."

On Monday, Sept.  17, Mr.

Rattner faxed his investors, who had already sent in funds, informing them that

Quadrangle was out.

For YankeeNet officials, it was a relief.

"From Day 1, Quadrangle felt uncomfortable that they were not the

dominant partner," said one. "It was clear, too, that they didn't want Leo

Hindery to be C.E.O. They thought they could surround Leo, and you can't run a

company that way. At the end of the day, no one lost any sleep over it."

The Goldman bankers, meanwhile, say their enthusiasm is as great

as ever.

"Remember, all this was right after the World Trade Center

attacks," said Mr. Ravitch. "For us to double the size of our investment when

we couldn't get to our offices was a sign of how much we love the deal."

As for Mr. Rattner and Quadrangle, the bottom line seems clear:

Without greater control, the deal truly wasn't worthwhile.

Mr. Hindery, meanwhile, is ready to get going. With an office

full of executives working on programming and ad-related issues, he now has to

clear that all-important hurdle: getting Time Warner and Cablevision executives

to add the YES network to their basic cable package-the source of viewers and

ad dollars.

Meanwhile, by opening day

2002, he has to pony up about $28 million to Mr. Steinbrenner, as YES's right's

fee. That's some 180 days away.