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In a taped interview with Squawk Box's Becky Quick airing tonight, Buffett says he "looked hard" at a telephoned offer that Friday night to buy AIG's property casualty operation in for around $25 billion, but decided against it.
He recalls telling AIG CEO Bob Willumstad that night, "Unfortunately, I can't do this deal. And don't waste your time with me, so go someplace else."
He also recalls that he got a phone call Saturday night from Barclay Capital's Bob Diamond, asking about a complicated reinsurance deal that might have convinced the British government to allow Barclay's to come to Lehman's rescue.
About to go to a social event in Edmonton, he asked for a fax with details of the proposal. But when he got back to his hotel at midnight, there was no fax and he assumed the idea hadn't worked out.
Today, in a on-stage appearance with Fortune's Carol Loomis (the editor of his annual letter to shareholders) at the magazine's Most Powerful Women Summit in California, Buffett reveals that 10 months later, with the help of his tech-savvy daughter Susan, he discovered a number of voice-mail messages on his cell phone from that weekend, including one from Diamond.
Did his inability to work his cell phone send Lehman to its doom? Probably not. There was a lot going on that night, and it seems unlikely that one connection could have made everything go right when everything was going wrong.
Here's the video clip and transcript of part one of Becky's conversation with Buffett. (Part two airs tomorrow morning at 6a ET on CNBC's Squawk Box.)
She started by asking Buffett if he agrees with those who say Lehman had to fail to save the rest of the financial system:
WARREN BUFFETT: Well, I think -- I think Lehman was destined to fail unless the government came in big time. And -- you know, for one reason or another the -- they generally said they didn't have the authority. My experience usually as it -- whenever the government wants it they find the authority, but if -- if -- listen, if Merrill Lynch hadn't gotten sold on -- on -- on -- on Sunday -- what would have happened Monday would have been off the charts.
BECKY QUICK: So the --
BUFFETT: We'll --
BECKY: -- more important --
BUFFETT: -- we're --
BECKY: -- one to save?
BUFFETT: Lehman -- Lehman probably should have been -- not saved isn't the right world -- word, but transferred in some kind of an orderly manner. I mean it was -- it was the chaos that came after the fact that it just -- it just happened and there was total disorder. And I think the trustee for Lehman has said between $50 and $75 billion at Lehman itself was lost unnecessarily because of the disorderly way that the liquidation took place.
BECKY: Obviously there were a lot of calls that were going on behind the scenes at that point. Were you a part of any of those calls?
BUFFETT: Oh, I -- I got a call. I was in Edmonton -- at a social event that -- I was at the hotel about 6:00 or so Edmonton time. And I did get a call from -- from -- the head of -- the head of Barclay's -- Bob Diamond and -- and Michael Klein, who was an investment banker. And they had just learned apparently that the British authorities would not allow them to take over all of Lehman. This was not just the part that they took over later. But they were -- they were talking about -- about coming in and taking over Lehman. And the British authorities had said if -- if it involved more than three billion pounds, as I remember, it needed the vote of shareholders and that couldn't take place 'til sometime later so they were asking if we would write an insurance contract that would protect everybody on the other side of trades until they got that shareholder approval. So they were looking for a solution I can tell you at about 8:00 on —
BECKY: On Saturday?
BUFFETT: -- on Saturday. And -- 8:00 in the evening. And -- they didn't find one.
BECKY: Were you surprised? I mean it -- what happened? Did you turn down this offer? What happened?
BUFFETT: Well, what happened is they described the transaction to me that I really couldn't grasp -- quickly. And so I asked them to send me a fax at the hotel. I was gonna go to the social affair that would break up around midnight. Send me a fax that explains the transaction in detail so I could understand it. Tell me how much of a limit they needed and -- how much of a premium they would pay. And then I would get back to them promptly. I'd call 'em that night. And -- 'cause it was a complicated transaction they were describing. I didn' t -- I didn't fully understand it and people were waiting for me downstairs. (CHUCKLES) Anyway -- when I got back to the hotel that night around midnight, but there was no fax. Apparently it blew up at some point in that period.
BECKY: What -- what did you hear afterwards? That -- did they explain to you why or what?
BUFFETT: Well, I -- no, I -- I don't know why they felt the transaction was unfeasible or I don't know if for some other reason that Barclay's decided they couldn't go ahead with Lehman at that point. And as you know, a few days later they actually made a transaction with the broker-dealer arrangement. But -- the way I understood it on Saturday at 8:00 New York time or so was that -- that -- one of the authorities in -- in England had ruled essentially that if it involved more than, I think, three billion pounds that they couldn't do it without shareholder approval.
BECKY: Did you get other phone calls that weekend?
BUFFETT: I (LAUGHS) got a lot of phone calls. I had a phone call on Friday night -- the Friday -- late Friday afternoon -- on AIG. And they -- they were gonna need many, many billions of dollars by the following Wednesday, so I went down to the office on Friday night and looked hard at whether we might possibly buy a very large property casualty operation from them. And -- spent a few hours then. And then I called (AIG CEO) Bob Willumstad and I said, "Unfortunately -- I can't do this deal. And don't waste your time with me, so go someplace else." Then on Sunday after I got back from Edmonton, AIG was in the picture again and they were looking for an insurance policy in connection with an offer that was being made for AIG. I think it was by Chris Flowers and perhaps KKR, a few people.
BECKY: Right.
BUFFETT: A few people. And they said they were gonna get goin' to a board meeting and decide whether they were going to accept this. But if they did accept it would we be good on a certain type of reinsurance transaction. I said I thought we would. But then that blew up on Sunday night, so it was -- a lot of action.
BECKY: Is this different than any time you'd ever experienced before?
BUFFETT: It was --
BECKY: That were --
BUFFETT: -- it was -- except for the Solomon experience I had in 1991, when I was more directly involved. This was a very extraordinary weekend.
BECKY: What did you see in the AIG deal, in the offer there that you -- that you thought, "Forget about it. This is not gonna work?"
BUFFETT: I just -- we were talking about buying a property casualty operation that might have sold in the $25 billion range. And what I saw indicated to me I wouldn't have wanted to pay that in the first place. And beyond that it would have required New York State Insurance Department approval and who knows was else. And I just -- there was no way to hand a lot of money by Wednesday the next -- the next week.
BECKY: And in hindsight do you have any regrets about any of the decisions you made that weekend?
BUFFETT: No. I -- I mean the -- the -- I should have been probably doing other things too. No, I -- I'm -- I am -- I am glad we didn't buy that particular insurance operation. I would have done the reinsurance transaction that was involved on Sunday night. The Lehman thing I still don't understand, even (CHUCKLES) to this day, exactly what the transaction was. No, it was -- it was -- it was a movie to see but not to -- participate in. (LAUGHS)
PART TWO: NO "BOUNCE" FOR ECONOMY, BUT RESIDENTIAL REAL ESTATE HAS IMPROVED
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