Incoming White House chief of staff Rahm Emanuel’s career as an investment banker was short but, oh, so sweet. Emanuel left the Clinton White House in 1998 as a senior adviser on a government salary. By the time he won election to the House in 2002, he had earned an astonishing $16 million.
How did he do it?
Partly, it was simple luck: Emanuel dipped quickly into the world of investment banking in time to catch the tail end of the 1990s boom economy as a Chicago-based managing director at Wasserstein Perella & Co., where he worked from 1999 to 2002. While he was there, the firm was sold to the German Dresdner Bank for $1.37 billion in stock, netting Emanuel much of his Wall Street windfall.
Returning to Chicago in 1998 after his White House stint, Emanuel soon ran Wasserstein’s small Midwestern office, developing a reputation as a deal guy who focused on mergers and acquisitions among companies that were subject to heavy government regulation. There, he deployed his skills as a born negotiator who knew the inner workings of government bureaucracies.
Frequently, Emanuel turned big Democratic donors and others he’d met during his White House years into clients for Wasserstein Perella, a firm that was led by Bruce Wasserstein, a hefty financial supporter of Clinton.
Emanuel is “tireless,” said John Canning, a managing director of Chicago-based Madison Dearborn Partners, a multibillion-dollar private equity firm.
Canning became friendly with Emanuel while he was setting himself up in Chicago business circles and has remained close to him through his congressional career. “He’s got a nose for a transaction, a sense for what each party’s looking for and where each party can concede,” Canning said.
Emanuel was unavailable for comment. But in 2003, he described his investment banking career to the Chicago Tribune.
“Fundamentally, I brought in business and worked on business that was very successful,” Emanuel said then. “I didn’t work on one deal. I didn’t work on two deals. I think it was close to six or seven, of which a couple of them were over $1 billion.”
The Democratic congressman from Illinois will be starting out as White House chief of staff for President Barack Obama during a severe global economic crisis. And as a former investment banker himself, Emanuel may be well-positioned to understand the problems and priorities of the nation’s struggling financial system.
While Emanuel lucked into the timing of the Wasserstein sale, the deals he worked on contributed in a significant way to the firm’s bottom line, generating hefty bonuses for him along the way.
One signature transaction was the $16 billion merger of Unicom Corp. and PECO Energy Co. into Exelon Corp., now one of the nation’s largest electric utilities, with nearly $19 billion in annual revenue. The company owns 17 nuclear reactors, which produce about 20 percent of the nation’s nuclear power.
When the transaction began in 1999, it was not at all clear that such an energy behemoth could be created. Utilities are subject to intense government regulation, and nuclear power plants face a host of government approvals before they can be sold to a new owner.
At the time, the energy industry was not known as a place for fast-moving negotiations. “Every deal starts with a list of reasons why it can’t get done,” said Canning, who recently joined the board of directors of Exelon. “And I can’t think of a deal that had more unsolvable obstacles than that one.”
But the deal benefited from a wave of electricity deregulation, and backers of the merger argued that the new company would be well-positioned to sell power in markets across the country as states opened their electricity markets up to competition.
The merger created a job for John Rowe, the CEO of Unicom who went on to become CEO of the merged company, Exelon. And Emanuel and Rowe have remained personally friendly.
After the Nov. 4 election, Emanuel was shopping in a bookstore when he called Rowe on his cell phone, asking for guidance on whether he should take the top White House staff job, according to The Washington Post.
Emanuel’s elevation to the White House comes at a pivotal time for the company he helped create. Exelon is now involved in a hostile takeover bid for the assets of NRG Energy, which would create the nation’s largest power company. NRG rejected Exelon’s initial bid of more than $6 billion, calling the offer too low.
The deal potentially faces a host of regulatory and government approvals, and industry insiders will be watching to see that Exelon is treated fairly by the Obama administration.
Donors affiliated with Exelon gave Obama’s presidential campaign more than $197,000, according to the Center for Responsive Politics.
“The Obama administration seems to be trying to set a high ethical standard,” said Sue Kelly, vice president of policy analysis and general counsel at the American Public Power Association. “We’d want to make sure that this merger received the close scrutiny that it deserves.”
Executives at Exelon declined comment.
An Emanuel representative said that Exelon won’t get any special favors from the White House. “Serving the American people and President Obama is Congressman Emanuel’s only priority,” the representative said.
Another key deal that Emanuel worked on at Wasserstein also had Chicago roots: the sale of SecurityLink, the home security unit of SBC Communications, to the Chicago-based venture capital fund GTCR Golder Rauner.
Emanuel’s old boss, billionaire Wasserstein, who is now chairman and chief executive of Lazard Ltd., praised the politician’s business skills in a statement.
“Rahm did a great job for our firm,” Wasserstein said. “Energetic and extremely popular in the Midwest, he had a keen understanding of the interplay of regulatory aspects and corporate activity in financial advisory work, particularly in the utility and banking industries.”
In 2000, Emanuel added to his private sector résumé, accepting an appointment by President Bill Clinton to the board of directors of Freddie Mac, a position he held until he began his campaign for Congress.
He served at Freddie Mac at a time when the mortgage giant was later found to have misstated its annual revenue. Freddie Mac and its corporate sibling, Fannie Mae, have been widely blamed for playing key roles in the mortgage market meltdown that triggered the current financial crisis.
A spokeswoman in Emanuel’s congressional office said his business career is something that Emanuel has already been drawing upon.
“When Congress considered the financial crisis in September, Rep. Emanuel used his knowledge of the financial industry to help protect taxpayers and significantly strengthen the economic rescue package,” said Emanuel’s spokeswoman, Kathleen Connery. “His experience in government and business will be a tremendous asset as he works with President-elect Obama to help get our economy back on track.”