Warren Buffett and Lehman Brothers "never got close to a deal" as the firm struggled to raise capital in March of 2008, according to a just-released history of Lehman's downfall.
A 5-page section of the 2200-page report by court-appointed bankruptcy examiner Anton Valukas details how Lehman CEO Richard Fuld called Buffett on March 28, 2008 to discuss the possibility of Buffett "investing at least $2 billion in Lehman."
Apparently unknown to Fuld, someone at Lehman had drafted a letter to employees "outlining a $3.5 billion investment from Buffett in Lehman's preferred stock at $54 per share conversion price."
That turned out to be a surprise for Buffett, "because he never got close to a deal with Lehman."
Based on a September 22, 2009 interview with Buffett, the report says, "Two items immediately concerned Buffett during his (March 28) conversation with Fuld."
First, "Buffett took it as a negative that Fuld suggested that Lehman executives were not willing to participate in a significant way" by investing in the firm under the same term.
Second, Buffett thought Fuld's complaints about short sellers indicated a "failure to admit one's own problems."
At Fuld's request, Treasury Secretary Henry Paulson later called Buffett to "signal" he would like the billionaire to invest in Lehman, but Paulson "did not load the dice."
Buffett "cemented" his decision not to invest after reviewing Lehman's 10-K and learning of a "$100 million problem in Japan that Fuld had not mentioned during their discussions."
The report also notes that Barclays talked to Buffett in September about the possibility he might guarantee Lehman's operations until a deal between Lehman and Barclays closed. Buffett "expressed interest" but Barclays did not pursue the matter.
Buffett described that episode in an interview last Septemberwith CNBC's Becky Quick.
Here's the Berkshire excerpt from volume two of the Examiner's report:
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