October 14, 2008 1:55 PM

Davis Polk, Simpson on the Treasury's $250 Billion Bank Injection

Posted by Zach Lowe

Davis, Polk & Wardwell may not have been interested in the Treasury Department's bailout work, but it was more than happy to spend the weekend advising the Treasury's partner--the Federal Reserve Bank of New York--on the government's new $250 billion capital injection into the nation's banks.

Davis Polk and new Treasury counsel Simpson, Thacher & Bartlett spent the weekend crafting the capital injection, which will come out of the broader $700 billion bailout fund.

The plan, as outlined by The New York Times, will send $125 billion of that money to eight of the nation's largest banks, including Bank of America, Citigroup, Wells Fargo, and Bank of New York.The government has agreed to guarantee all senior debt issued by banks over the next three years, a historic move designed to trigger lending between financial institutions, the Times says.

A team from Davis Polk spent the weekend looking over term sheets outlining the plan, the firm says.

The Davis Polk team made sure the government's equity investments were structured in ways that would not be too dilutive of existing shareholders or discourage new capital from the private sector, says partner Randall Guynn, who worked on the matter with fellow partners Michael Kaplan and William Taylor.

Shareholders in AIG remain worried that the government bailout of the insurance giant will wipe out the value of their shares.

Lee Meyerson, the Simpson Thacher partner heading the firm's Treasury team, did not respond to messages seeking comment about the firm's work.

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