The Work

November 24, 2008 12:29 PM

Davis Polk, Cleary, Cravath All Work Overtime to Save Citi

Posted by Zach Lowe

Lawyers from Davis, Polk & Wardwell, Cleary Gottlieb Steen & Hamilton and Cravath, Swaine & Moore worked through the weekend to hammer out a rescue plan for Citigroup under which the government will shoulder losses tied to $306 billion in the bank's bad assets.

The assets are mostly tied to real estate-backed loans and represent only a small chunk of Citi's more than $3 trillion in total assets, according to the Wall Street Journal. Citi is to absorb any losses on the first $29 billion, but various government agencies will be responsible for at least 90 percent of losses beyond that--meaning taxpayers will pay the bill if Citi's bad assets continue to tank.

The government is also buying $20 billion in Citi preferred stock, a move that will slightly dilute the value of shares currently held by investors, the New York Times reports.

Davis Polk represented Citi in negotiating the deal, the firm said. That's an interesting development for two reasons. First, the firm advised Citi in its failed bid to acquire Wachovia last month (Citi lost out to Wells Fargo). (The collapse of that deal apparently did not diminish Davis Polk in Citi's eyes.)

Second, the firm has previously represented the Federal Reserve and the Treasury Department in several other bailout deals, including the government's plan to rescue insurance giant AIG. This time, the firm found itself on the other side of the table from the Fed and Treasury.

Partners Randall Guynn, Gar Bason, Louis Goldberg and Avishai Shachar led the Davis Polk team on the Citi deal. Bason (M&A), Guynn (financial institutions) and Shachar (tax) are all heads of Davis Polk practice groups.

Sources with knowledge of the deal say Cleary represented the government; the firm said partners Mark Walker, Ray Check and Kimberly Blacklow led the team.

Meanwhile, those same sources say, Cravath advised Citi's 15-person board of directors. It was unclear who would get that work after Citi reportedly had to rule out Wachtell, Lipton, Rosen & Katz and Sullivan & Cromwell because both firms were involved in the Wachovia-Wells Fargo deal that provoked Citi to unleash a flood of litigation.

Sources with knowledge of the Citi deal say Cravath's Robert Joffe headed the firm's team advising Citi's board.

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Unlike the auto bailout, this bailout doesn't allow us to keep our jobs or generate commerce plus, they were not adversely affected by the economic crisis. They caused it. After already giving them $25 billion, they are still foreclosing on our homes, charging us loan shark rates on our credit cards, and refusing to loan money to business resulting in more lost jobs and no commerce whatsoever. We should first demand a management change and a plan. What is to guarantee that, after we bail them out, they don't just go out and do the same things that got them to this point all over again only to have us left holding a lot of worthless stock. Get rid of those corporate jets and the high salaries and bonuses. Otherwise this is just more money after bad.

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