Treasury taps Morgan Stanley to advise on AIG

Has Morgan Stanley become the go-to investment bank for the U.S. government? When the U.S. Department of Treasury hired a financial adviser -- the first time since the Depression -- to help with problems at the Federal Home Loan Mortgage Corp. and Federal National Mortgage Association, or Freddie Mac and Fannie Mae, it tapped Morgan Stanley for the exclusive post. Then, word came last week that the Federal Reserve had called upon Morgan Stanley to assist with its assessment of troubled insurance giant American International Group Inc.

Once again, Morgan Stanley served as the Fed's sole financial adviser, according to a source familiar with the assignment. The firm did not, however, dream up the $85 billion AIG bailout loan; its mandate was to look specifically at the systemic risks to the market if the insurance giant were to collapse. The Morgan Stanley team was spearheaded by Robert Scully and Ruth Porat -- the same duo that spearheaded the firm's Fannie and Freddie effort.

For legal advice, the U.S. government -- both the Treasury and the Fed -- tapped Davis Polk & Wardwell. The team included Bradley Smith and Robert Heckart from Davis Polk's credit practice area, Marshall Huebner and Donald Bernstein from its bankruptcy group and Ethan James from its financial institutions team.

AIG, in turn, procured financial advice from Blackstone Group LP, with its team of John Studzinski, Martin Alderson Smith, Larry Nath, Tom Stoddard and Art Newman. For legal counsel, it tapped Sullivan & Cromwell LLP, led by H. Rodgin Cohen, who also worked on the Fannie Mae bailout.

Indeed, many of the same advisers pop up on both the Fannie-Freddie and AIG bailouts, including Morgan Stanley's Scully and Porat. At Morgan, the duo led a 39-member Fannie and Freddie team that shuttled back and forth between New York and Washington, spending about two days a week in the nation's capital since winning the mandate in early August. In New York, the group often huddled in a 31st-floor fishbowl conference room in Morgan's headquarters or in a conference room on the trading floor.

Morgan Stanley divided the Fannie and Freddie team into five workstreams: capital markets; mortgage-backed securities, or MBS, purchase program; regulatory issues/structured finance; corporate finance; and mortgage analytics. Dan Simkowitz, vice chairman of global capital markets, and Taylor Wright, head of the U.S. financial institutions equity capital markets group, spearheaded the capital markets effort; Drew Ertman, head of financial institutions debt capital coverage, led the team working on the MBS purchase program; Kevin Ryan, U.S. head for financing products, captained the regulatory issues and structured finance workstream; Mike McMahon and Peter Juhas, both in FIG, headed the corporate finance work; and Valerie Kay, a managing director, guided mortgage analytics.

Though Morgan Stanley was the only investment bank involved in the Fannie and Freddie situation, a slew of law firms took part. Cleary Gottlieb Steen & Hamilton LLP worked with Morgan Stanley on the assignment, assisting on the regulatory side and helping structure senior preferred securities. Its team was led by partner Alan Beller.

The U.S. Treasury sought counsel from Wachtell, Lipton, Rosen & Katz. Partners advising were Edward Herlihy, Steven Rosenblum, Richard Kim, Lawrence Makow, Eric Roth, Harold Novikoff, Philip Mindlin and Eric Rosof. The government rescuer, the Federal Housing Finance Agency, was advised by Arnold & Porter LLP, whose team was headed by Richard Alexander.

On the troubled mortgage lenders' side, Fannie Mae had on board Sullivan & Cromwell, where Cohen led the team, and Latham & Watkins LLP, with lawyers Douglas Greenberg, Everett "Kip" Johnson Jr., Daniel Meron and Donald Remy. Fannie Mae has been a longtime client of Latham. Fannie's board went with the law firm that has represented it since 2004: Cravath, Swaine & Moore LLP, where Robert Joffe and crew pro­vided counsel.

Freddie Mac hired Davis Polk & Wardwell in July to help raise capital. Randall Guynn, head of Davis Polk's financial institutions group, led the charge there. Freddie also tapped a team led by Stuart Stock from longtime firm Covington & Burling LLP.