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The Crisis: Wall Street Titans Speak Out

Monday, 14 Sep 2009 | 12:56 PM ET
1 Year Later - Reflections From The Street
CNBC.com
1 Year Later - Reflections From The Street

The playing field on Wall Street is completely different today, versus a year ago when Lehman Brother’s collapsed.

A series of events during the week of September 14th, 2008 including Lehman's fall, BofA buying Merrill and AIG being bailed out by the government changed everything.

The rules of engagement were different in the financial markets.

Maria Bartiromo and I had unprecedented access interviewing top executives and government officials that were involved in the decision making process.

In our one-hour special presentation One Year Later: Reflections From The Street”, Maria Bartiromo sat down with four of the biggest names on Wall Street: John Mack – Chairman & CEO of Morgan Stanley, Larry Fink – Chairman & CEO of BlackRock, Robert Diamond – President of Barclays and Vikram Pandit – CEO of Citi.

John Mack
cnbc.com
John Mack

One year later, Morgan Stanley’s Chairman & CEO John Mack says “there's calmness back in the market”, however people are still shell-shocked.

Mack said Morgan Stanleyis in a much better position now, where the firm has “raised a lot of capital. We probably have one of the highest tier, equity capital in the business”. The firm has also reduced leverage “dramatically” and “bulked up” on the risk management side.

But everyone is still concerned. Mack said, “when the crisis happened and everyone came together trying to find what's the right solution, and then the government stepped in and came up with TARP”.

Mack said Fed Chairman Ben Bernanke, then Treasury Secretary Hank Paulson and then New York Fed Head Tim Geithner deserve credit for what they did and how they did it. Mack understands the criticism, however “at the time, things were moving so quickly and so fast, I thought the reaction that they had was really outstanding. And I believe, working with other regulators around the world, really stopped a global meltdown, because it was very close”.

When Bartiromo asked Mack what the industry looks like now versus then, Mack answered “it changed”. Mack said, Morgan Stanley “will not have the kind of leverage that we saw a year and a half ago or two years ago”.

With the new regulations in place, Mack said “that has gotten all of us to look at our balance sheet, our leverage. And going forward, I think those are permanent changes”.

Larry Fink
Larry Fink
Larry Fink

BlackRock's Chairman & CEO Larry Fink was one of the key players in restoring liquidity to Wall Street. Fink said things are “healing” from the year ago period, “the marketplace is responding to better information” and that the environment is less threatening from a year ago.

Throughout the crisis, Fink landed the role of the government's “go-to-guy”, valuing assets of some of the most troubled firms, including Fannie Maeand Freddie Mac , along with crippled financial giant AIG.

When asked whether Lehman should have been allowed to fail, Fink told Bartiromo “we had possibly Merrill Lynch failing, possibly AIGfailing, which were far worse problems. And I think people just did not have time to focus on the commercial paper issue, the money market paper. The reason why Lehman Brothers was so important is Lehman Brothers also used short-term funding in a very big way. People had a great deal of Lehman Brothers commercial paper. And that's what caused the Reserve Fund to ultimately fail, because they owned a lot of Lehman paper with the idea that Lehman was not going to fail, there was going to be some private resolution, maybe with some government involvement, and that obviously did not happen”.

This Day 1 Year Ago - A CNBC Special Report - See Complete Coverage
This Day 1 Year Ago - A CNBC Special Report - See Complete Coverage

On the economy, questions are growing throughout Wall Street whether this will be a V-shaped, U-shaped, or W-shaped recovery. Fink called it a “swish economy”, describing it like the Nike swish. It's just going to go up very modestly for the next few years. It's going to be better, but it's not going to be what we expect after a very severe recession.'

For investors looking for an edge, Fink had some advice. Fink said “you're being paid now to take on more risk in the form of equities and in the form of credit. We believe there are still opportunities in credit”.

While there are opportunities, there are also worries. Fink is worried about the dollar, “I worry about that we don't pay enough attention about how we are positioned as a country worldwide. I worry about our competitiveness as a-as a nation. I believe other countries are doing some very interesting things about stimulating businesses, what Brazil is doing now in terms of lowering taxes for companies and building long-term infrastructure projects.”

BARCLAYS' BOB DIAMOND ON 'THE NEW NORMAL'

Bob Diamond
CNBC.com
Bob Diamond

A year ago, BarclaysPresident Bob Diamond took an opportunity at one of the riskiest times ever seen on Wall Street. Bartiromo sat down with Diamond on their new trading floor (acquired from Lehman) and reflected on what was going on a year ago.

The focus? Diamond seized Lehman’s i-banking for $2 billion - that deal may go down in the history books as a pivotal moment on Wall Street and for the firm.

Diamond said “when the opportunity for Lehman came up, they were already thinking about growth in the U.S. for almost a year”. Diamond described the moments leading up to the decision as “stressful”. It was emotional. We knew we were playing for big stakes”, he recalled.

According to Diamond, this type of deal was needed. Diamond said the company had a very strong position in Europe and in Asia, but was subscale in the U.S. With the acquisition, Barclays is now one of the leading players on Wall Street. The British firm has already clinched the title as the world's biggest underwriter of international bond sales.

What's changed from last September? Diamond said the “new normal” in the financial sector is significant consolidation. What's equally important, Diamond says, is that confidence is also coming back into the global economy.

But more work needs to be done according to Diamond.

Diamond says focus is now on the deficit, spending, stimulus and the overall competitive position of the U.S. economy.

Vikram Pandit testifying before House Financial Services Committee
CNBC.com
Vikram Pandit testifying before House Financial Services Committee

In a rare and candid interview with Maria Bartiromo, Citi’sCEO Vikram Pandit reflected on the year since Lehman's collapse.

Going back to the weekends in September and October when Washington and Wall Street were trying to save the financial system from collapse, Pandit told Bartiromo why Lehman was so crucial to the Street. "There were a number of us there who knew that this wasn't only a question about one company, one firm. This wasn't only about inter-company contracts and whether we'll make money or somebody else makes money, but that if something did happen to Lehman it could undermine confidence in the entire financial system, which could drive away investors who were invested in the financial system - bonds and financial capital."

Pandit joined Citi back in April 2007 and his rise was somewhat meteoric. By mid October, he was running Citi's investment bank and 30 days later, Chuck Prince's shocking resignation put Pandit on top.

But it has been a rough ride for Citi, Pandit and the stock. Citi's bet on subprime mortgages went wrong, the bank perhaps grew too big, too fast and it's deal to buy regional bank Wachovia was trumpedby Wells Fargo . The banking giant fell to its knees and almost went under, until it received the largest federal bailout of any bank last year - a total of $50 billion.

For now, Pandit isn't putting a timeline on when Citi will return TARP funds. But he said "that's something we have to work out with the regulators and Treasury." Since the Fed's stress test earlier this year, Citi has continued to raise capital. Pandit told Bartiromo that over the past 18 months, Citi has raised $85 billion in capital privately and that "we're looking forward to seeing what the regulators say about what the right long-term capital structure ought to be and we'll let that guide us."

For Pandit and Citi, the good news is that there is now a lot more liquidity in the markets. He said "over the last year, there were lots of liquidity and funding issues that had gotten to a point where they needed government and federal help. Now we've addressed a lot of those things." But there are still some bumps in Citi's path to profitability, especially in the credit card and mortgage markets. Pandit said that "when we see those assets turn, I think you'll start seeing a change in the profitability picture of Citi."

While the road ahead may still be challenging, Pandit is confident that Citi has a clear strategy about its future. For him, it's about the right strategy, having the financial strength to weather any storm, and the culture to execute on any plan.

We will have more of Maria Bartiromo's one-on-one interviews with John Mack – Chairman & CEO of Morgan Stanley, Larry Fink – Chairman & CEO of BlackRock, Robert Diamond – President of Barclays and Vikram Pandit – CEO of Citi throughout the week. Be sure to check our blog for daily updates.

If you missed our specialOne Year Later: Reflections From The Street”, CNBC will re-air this must see presentation on Wednesday, September 16th at 9.00PM ET. We take an in-depth look at what happened during Lehman’s collapse and what Wall Street looks like today.

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Questions? Comments? Write to investoragenda@cnbc.com

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