Saturday, May 2, 2009

The White House Threatened To Destroy Perella Weinberg's Reputation

Update - please see additional FOIA information at end of post.

In an interview of momentous importance, WJR's Frank Beckmann interviews Tom Lauria, the Head of Restructuring at top five law firm White & Case, in which the lawyer, who represents Chrysler hold-out hedge funds Stairway Capital and Oppenheimer Funds, discusses on the record the amazing treatment by the White House of Perella Weinberg, which initially had been a transaction hold out but after threats by the White House (not my words) was forced to drop their objection and go with the administration. Says Lauria:
"One of my clients was directly threatened by the White House and in essence compelled to withdraw its opposition to the deal under threat that the full force of the White House press corps would destroy its reputation if it continued to fight...That was Perella Weinberg."
In the clip below, fast forward to the two minute mark, where the Obama administration's negotiating tactics become very, very clear.

What is very odd is that Perella Weinberg could possibly have veered away from the administration's path in the first place: Zero Hedge readers know that P-W is the very firm advising the rapidly sinking FDIC "on transactions and strategies to stabilize the banking system, and also on the proper way to dispose failed institutions and how to handle delinquent securities assumed from banks, as well as the creation of the aggregator bank."

This leads to the conclusion that this was really the work of one Dan Arbess, who runs the recently acquired by P-W, Xerion Capital, but nonetheless does not explain the lack of strategic integration at this most critical of advisors to Sheila Bair, and by implication the U.S. administration. How it is possible that one's core advisor would go against its client, even if offset by a Chinese Wall, is likely the big story here, and speaks volumes about the chaos behind the scenes currently occurring with regard to Wall Street's sentiment for the ruling administration.

Incidentally, Zero Hedge is considering launching a FOIA to Ms. Sheila Bair to disclose the compensation structure for Perella Weinberg as it continues to advise the FDIC on the "proper" shuttering and liquidation of bank after bank. After all, we have already seen 31 bank failures for 2009, a number that will likely hit the 100s, and it is every taxpayer's right to understand the motivations behind Perella-Weinberg's recommendations to the FDIC and to the White House, especially ahead of next week, when the stress test results could potentially lead to the closure of some of the "too big to fail" systematically important financial institutions.

The full interview with Tom Lauria below is a must hear for everyone as it discloses not only the administration's strong arming tactics in black and white, but also discloses some other critical facts that the president on his regular TV appearances has failed to mention such as:

- First lien holders were willing to accept a 50% discount on their positions, however the 71% demanded by the administration was seen as too much.
- The cash going to Junior claims (creditors below the first liens) will be between $10 and $20 billion, a number which in practice should satisfy a par recovery for the 1st liens if the Absolute Priority Rule was actually withheld.
- Among the creditors are not just vulturous hedge funds but "pensioners, teachers, credit unions, college endowments, retirement plans, and personal retirement accounts."

In conclusion, Lauria summarizes the developing Chryslerf#%k best:

"The President is trying to abrogate contractual rights; if he will attack that contractual right, what right will he not attack?"

Update: Zero Hedge urges our readers to click on the following link and submit a FOIA to the FDIC with regard to the abovementioned Perella Weinberg compensation matter. While one request will likely be ignored, as will ten or a hundred, if there are thousands of FOIA petitions, the FDIC may see it as their civic duty to provide the requested information. While you are at it, you may also request information on the remaining balance under the FDIC's Deposit Insurance Fund.

Hat Tip Steve Sphere: Related Content
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