FSA chairman Sir Callum McCarthy was in constant touch with the Americans on the Sunday morning, speaking to Tim Geithner, then chairman of the New York Fed, at lunchtime. Shortly afterwards, Varley called Sants and told him that Barclays was pulling out of the negotiations. It was 2pm and Lomas and his hit squad from PricewaterhouseCoopers were already combing the floors of Lehman’s headquarters at Canary Wharf.
Delicately Lomas said: “The call is to ask me to come and meet the board on Sunday, so that they can begin an exercise of planning the collapse of their company in the event that the discussion in New York didn’t get anywhere.”
Tension was palpable among more than 50 senior Lehman managers present to help channel information to negotiators in New York. Lomas needed to tread carefully.
“We had to work delicately with people and extract the information we needed without alarming them. It was tense because all eyes were looking across the Atlantic. When the final message came that the parent company would file [for bankruptcy] at the opening of business Monday morning New York time, there was disbelief, quiet contemplation of what it would mean,” he said.
Lomas, too, believes the US failure to save Lehman proved costly: “I was just amazed this was allowed to happen.”
While Lomas was beavering away, a dejected Diamond was going for dinner with his wife and daughter in Manhattan. On the way, his phone rang, and the name Bart McDade flashed on the screen. Diamond hesitated. McDade was the chief operating officer of Lehman, who had spent the last few days trying to find a savior for the failing bank.
He decided to be gallant in defeat and take the call. It was a decision that lifted his mood. “Would Barclays consider bidding for Lehman out of Chapter 11?” McDade asked.
Diamond slept on it. In the morning, just as Sants, Gieve and Darling had suspected, the financial markets were in freefall. Sants says he knew there would be big implications for the high-street banks.
“HBOS had been on the watch list for a very, very long time,” he said.
Unlike the Americans, UK authorities had learnt their lessons from the run on Northern Rock exactly a year earlier and had contingency plans for HBOS.
Lomas spent Monday trying to find a way of paying 5,500 Lehman staff, as its funds had been swept to New York on Friday night. Darling, Gieve and Sants spent the day working out how to shore up Britain’s biggest mortgage lender. Their worst nightmare had been realized.
The failure of Lehman had set off a tsunami of selling across the globe. For the next four weeks, the fear that any bank anywhere, no matter how big, could be at risk would stalk the markets.
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