Trigger Point

by Matthew Glass

  ‘Here we go,’ muttered Aspin.

  ‘Jim, come on, sit down,’ said Sonny Mello of JP Morgan Suisse. Mello was a tall, thin man with silver hair and a taste for Savile Row suits which he had flown in from London. He was more of a conciliator than the average banking chief executive and over the years had come to adopt the unofficial role of mediator to this bickering tribe when they were brought together.

  Perlman looked around the room. He sat. Jim Perlman enjoyed putting on a show. He wasn’t really angry. Not yet.

  ‘Jerry,’ said Ed Loeffler, the CEO of Citigroup, who had planned to be at a nephew’s wedding in California this weekend but had put his flight on hold, ‘I don’t know about everyone else here, but I already put forward an offer for certain parts of the Fidelian business. What’s the response? I assume the reason you’ve got us sitting here today on a Saturday morning is because they weren’t prepared to accept it. Have they named a price?’

  Rabin shook his head. ‘They want what they call fair value. I don’t know if that’s a price as such.’

  Loeffler watched the chairman of the Fed knowingly. ‘Jerr, have they given you a number?’

  ‘There’s no binding number.’

  ‘Jesus Christ, Jerry,’ said Perlman. ‘Have they or have they not given you a number?’

  Rabin glanced at one of his aides.

  ‘We have seen a number, Mr Perlman, which we do not consider realistic. It’s not fixed. We don’t consider it a floor.’

  ‘To hell with what you consider it. What do they consider it?’

  ‘We’ve told them it’s unrealistic. They know it. Bill Custler is talking to his shareholders as we speak.’

  ‘This is bullshit,’ said Aspin. ‘Jerry, you’re asking us to buy this shitty excuse for a bank from a bunch of owners who don’t accept the position they’re in. Excuse me, but I never saw a deal done like that.’

  Rabin didn’t respond.

  ‘Let’s step back from the price for a second,’ said Harvey-Wills. ‘How do we know the writedowns are limited to the numbers you’ve mentioned? There could be massive exposure here that none of us is aware of. Not to mention that you’re asking us to agree to this … When?’

  ‘We need to announce a deal before the markets open Monday morning,’ said Susan Opitz.

  ‘Not sure that we’re quite going to get the due diligence done.’

  ‘Sounds like a political agenda to me,’ muttered Aspin.

  ‘You’ve all got your own idea of what you think Fidelian’s worth,’ said Rabin. ‘At least you’ve all got a good idea of what you think some parts are worth. Bob, you wanted to buy part of its operation a year back.’

  ‘That was then,’ said Aspin. ‘Half the guys we wanted have gone now.’

  ‘Yeah,’ said Perlman, ‘because you poached them.’

  ‘You got a problem with that, Jim?’

  ‘Yeah, I got a problem with it. I got a problem with the way you fucking poached my forex team right off my floor.’

  ‘Well, if you can’t keep ’em, Jim …’

  ‘You telling me what I can do? You wanna tell me what I can do?’

  ‘Looks like someone has to. Ask me, someone ought to take a good long look at what you’re doing over there with what was once a fine firm.’

  ‘What I’m doing? If we’re gonna start talking about looking at what someone’s doing, I’d say we start with–’

  ‘Gentlemen!’ said Rabin. ‘Enough, huh?’

  Perlman stopped. He and Aspin glared at each other. The rest of the CEOs watched, disappointed that the Fed president had stopped what was shaping up to be a memorable spat between the legendary pair.

  ‘Let’s get back to what we’re here for,’ said Rabin. ‘Here’s what we’re proposing. You don’t need to do this by yourselves. The federal government is going to give you whatever help it can. Now, there’s twenty-three billion of capital that you’re going to have to put in. That’s there. Factor that into your figures, assume it’s going to happen and tell us what you need to be able to cover that. We’re prepared to make funds available on a long-term basis. We can talk about the commercials. Next, we’ll guarantee you cover for any additional writedowns Fidelian has to make over the next twelve months.’

  ‘Who’s we?’ said Perlman.

  ‘The government,’ replied Opitz. ‘We don’t want you to have any nasty surprises. Beyond the twenty-three billion, you take only the first two billion of anything else you find. We’ll carry the cost of anything else you find up to a total of twenty billion. The federal government will guarantee that.’

  Jerry Rabin nodded.

  There was silence in the room. Opitz could see the men calculating.

  ‘Is that eighteen or twenty billion you’ll guarantee?’ asked Loeffler.

  ‘That’s eighteen. Up to a total of twenty. You take the first two, then if we’re needed, we’re there for up to another eighteen. We think that’s an extremely generous proposition.’

  ‘Who cares?’ said Aspin impatiently. ‘I don’t want anything to do with this. I don’t want federal money. It’s poison. I don’t want it and I don’t need it.’

  ‘What level of scrutiny are you going to require?’ asked Harvey-Wills.

  ‘We would need to assure ourselves,’ said Rabin, ‘that any additional writedowns are genuinely coming out of Fidelian business.’

  ‘Yeah, and before you know it you’ll be looking at pay and bonuses and we’ll be up in front of Congress explaining why we have to pay some trader what we already agreed to pay him.’ Aspin snorted and looked around at the others. ‘We’ve seen this before. You guys, you want to get involved in that stuff, be my guest. I have no interest in it. I don’t need Congress looking into my bank and I sure as hell don’t need the press talking about me like I’ve taken some kind of money off the taxpayer.’

  ‘Bob,’ said Rabin. ‘It’s only a guarantee.’

  ‘Looks the same from the outside.’

  ‘You don’t have to take it,’ said Opitz.

  ‘Yeah, right. And expose myself to an unquantified level of risk because you’re asking me to do a deal in six hours. Madam Secretary, I didn’t get to where I am today by being the baby people steal the candy from.’

  Opitz took a deep breath. ‘Mr Aspin, I think we should remember where we all come from.’ She looked around the room. ‘Every one of you took money from the government in ’08. Every one of your institutions. To me, that means not one of you would be here today if the government, if the American taxpayer, hadn’t been prepared to hold out a big bag of cash to you when it mattered. Let’s just remember that. Now, what I think the American taxpayer is saying, is that it’s time you guys did something in return.’

  Aspin smiled incredulously. ‘This is blackmail.’ He looked at Rabin. ‘Do you agree with what the secretary just said, Jerry? Because if you do, this is straight-out blackmail.’

  ‘Mr Aspin, this is not blackmail,’ said Opitz coolly. ‘Blackmail is when someone says they’re going to do something bad to you if you don’t do a certain thing they desire. I am not saying that. The bad thing that will happen, you’ll be doing to yourselves, because if this bank goes down, there’s not one of you that won’t suffer. You know that better than me. So I’m saying we have a need here, all of us, to get this settled. And I’m saying the federal government will do its bit by offering to help so you can do your bit. We’re asking you to make a commercial decision in your own interest which we will support. We’re not asking you to put anything at risk. We’re going to take the risk away from you.’

  ‘You’re asking us to be the agents of a federal government intervention. Well, Madam Secretary, go intervene yourselves.’

  ‘You know we can’t do that.’

  ‘And there’s a good reason for that. It’s called the market. The market makes the call.’

  ‘Let’s hold up,’ said Rabin. ‘You guys all know what happens if this bank goes down.’

  ‘It goes down,’ said Asp
in.

  ‘Bob,’ said Rabin, ‘I believe that’s what people said the weekend before Lehman went down.’

  ‘Fidelian ain’t no Lehman.’

  ‘It’s big enough. We can’t allow that to happen. Neither can you. I assume each of you has already figured out the likely hit you’ll take if Fidelian falls over.’

  ‘As I said,’ said Aspin, ‘Fidelian ain’t no Lehman. Not for Deutsche BoA, anyway. I think what we have here is political calculation masquerading as economics.’

  ‘No we do not!’ retorted Opitz. ‘Have you calculated the cost of the systemic economic effects we’re going to see if this happens? We have.’

  ‘Blackmail,’ said Aspin.

  ‘Bob, I don’t think we should use that word,’ said Sonny Mello. ‘I don’t think that’s appropriate.’

  Aspin gave a disgruntled shrug.

  Jerry Rabin glanced at Opitz. She nodded slightly. He looked back at the bankers. ‘This is a very serious situation. The president would like to speak to you.’

  One of Rabin’s aides reached into his briefcase and produced a secure phone.

  It took a couple of minutes to get through the White House switchboard to the president. The bankers waited silently. Aspin sat, arms folded across his chest, face set, as the president encouraged them – made it clear that he expected them – to find a way to do a deal.

  ‘Well,’ said Aspin when the president had finished. ‘Now it’s blackmail with icing on top.’ He stood up. ‘Mr Chairman, Madam Secretary, Deutsche BoA does not believe there’s a deal to be done here. You said at the beginning of this meeting that everything that takes place in this room will remain confidential. I assume you will honor that undertaking.’

  Rabin nodded.

  ‘Goodbye, then.’

  Aspin walked out. Perlman muttered something to himself.

  There was silence.

  ‘Okay,’ said Sonny Mello. ‘Here’s what this deal needs to look like. There’s a bunch of loans in this business that no one’s going to want. We separate them out, the rest is maybe doable at a couple of bucks a share plus the money the Fed’s making available. That means we’re going to have to put something in to create an entity that can take those loans away. So in the words of one of my illustrious predecessors, let’s make it simple. How much would each of us put in to save Fidelian?’ He glanced for a moment at a piece of paper on which he had made some calculations. ‘From what I’ve heard, and taking account of the guarantees the government’s providing, I’d say ballpark we’re looking at three-quarters of a billion each. Who’d agree to put that in?’

  No one responded. Rabin looked around the room. The bankers avoided his gaze.

  Suddenly he was afraid the rescue operation was going to stop right there.

  ‘We can do the deal any number of ways,’ he said quickly. ‘Get your teams in. Do the due diligence. We’ve got the whole weekend.’

  TOM KNOWLES SPENT the weekend at the White House. The campaigning engagements that had been organized for him had been canceled. Final polls were coming in from all over the country ahead of the elections on Tuesday. The president spent hours analyzing them with his aides. The chance of getting sixty seats in the Senate was gone. Knowles was just hoping now that the Republicans could hold the numbers they had. The discussions taking place at the New York Fed would have a big bearing on that. Failure to get a deal was too awful to contemplate.

  The implications of getting a deal weren’t unalloyed joy either. Ed Abrahams had been extremely wary of offering a federal guarantee, but Knowles had been convinced by Rabin and Opitz that there was no way they’d get a deal without it. But it wasn’t going to look good, he knew that, and he was going to come under plenty of fire when it came out. Opitz had told him they might be able to keep the details in the public domain vague for a day or two, long enough for the true magnitude of the federal commitment to remain unclear until after the election. But even that wasn’t certain. One thing that definitely was certain was that there was no more government money on offer to sweeten the deal. Eighteen billion was the max. Economic implications aside, if the sum got too big, saving the bank would be as bad for him politically as letting it fail.

  Opitz updated the president through Saturday. Negotiations continued and the Treasury secretary didn’t know which way things would go. The bankers had their teams working overnight but when Opitz rang on Sunday morning there was still no deal. At lunchtime Opitz called to say that two more of the CEOs had taken their teams and walked out, and it looked as if Ed Loeffler was about to go as well, which would probably be the end of the ballgame. The president got back on the line and managed to keep Loeffler in the room. At seven in the evening Opitz rang again to say there was still no deal and she couldn’t say if there would be. Knowles spoke to her at eleven and she said she still couldn’t say.

  He went to bed not knowing what to expect when he woke up. A call with the Chinese president had been scheduled for early the next morning before the markets opened, in the hope that there would be an offer for Fidelian that Knowles could put to him.

  Normally Tom Knowles was pretty good at putting problems aside for the night. But that night he got very little sleep.

  When he woke at six o’clock a message from the Treasury secretary was waiting.

  24

  THE DEAL HAD been finalized around 4am on Sunday. Three banks were in, breaking Fidelian into pieces and spinning off its most toxic loans into a jointly owned entity created for the purpose. The price, although higher than the previous offer that Custler had rejected, still wasn’t big. It was nowhere near the number Custler had said his board would require.

  At least that gave Knowles something to say. His call with the Chinese president had been scheduled for 7am in Washington, 8pm in Beijing. Gary Rose, Ed Abrahams and Roberta Devlin were in the Oval Office to listen in, together with a Mandarin speaker from the National Security Council staff.

  Knowles had met Zhang on four occasions and couldn’t say he liked him. His conversations with his Chinese counterpart had confirmed what he had been told to expect of him in briefings. Zhang was unfailingly formal, with a tense and controlled air, and didn’t seem to warm up even in private conversation. His demeanor befitted his reputation for ruthlessness and austerity, and he was utterly obdurate in his focus on economic growth. Nothing in any of his conversations ever suggested a softening over democracy, human rights or environmental sustainability. Under Zhang, China had proven as hungry for natural resources and as deaf to demands for meaningful compromise over climate change as under any of his predecessors.

  But Zhang’s obsession with economic growth was at least an advantage in this circumstance. There was no benefit for the Chinese president in seeing the disruption in the American financial system that the failure of Fidelian could create. China had avoided the worst of ’08 and ’09 because of the extraordinary domestic stimulus it had injected, but the effect came back to haunt it six years later with inflation, a debt-riddled banking system and spiraling unemployment that had led the regime to the brink of collapse. There was no reason to suppose that Zhang would allow anything that would open the door, even fractionally, for such conditions to recur.

  Yet by the same token, Knowles didn’t understand why Zhang hadn’t done something to save Fidelian already. For all the lip service Chinese officials paid to the transparency of their financial system, it was still an economy where, if the government told a bank to lend, it would lend. If it told its own investment fund to put money into an entity that it owned, or accept a sale, it would do so. The Chinese president couldn’t possibly be unaware of the crisis that was unfolding on the American markets. Markets around the world had fallen in synch. Tom Knowles had had calls from a whole clutch of national leaders asking anxiously whether he thought the US was on the brink of significant economic problems, and Susan Opitz had had calls from an even larger number of finance ministers. The whole world was watching.

  Maybe Zhang didn’t kn
ow. Or maybe he didn’t know the role his own investment fund was playing. Or maybe he was being told that the offer would keep getting better the longer he waited. The purpose of the call was to make sure he knew the truth about these things. To make absolutely sure the Chinese president knew that the PIC held the cards in this particular deal, that the offer the PIC was about to receive was the last best offer they would get, and to confront him with the prospect that if his investment fund wasn’t prepared either to support Fidelian or to sell it, it would set off an economic storm that would quickly find its way across the Pacific from one shore to the other.

  THEY EXCHANGED INTRODUCTORY pleasantries through their interpreters. Zhang’s tone was as formal as ever.

  Trying to strike a positive note from the start, Knowles initiated a brief discussion of the nuclear decontamination mission in the former North Korea, in which the US and China were participating side by side as members of the UN oversight panel. Bob Livingstone, informed of the possibility of an upcoming call to Zhang, had given Knowles a list of other issues to raise with the Chinese president and a series of talking points on each one, but Gary Rose, after vetting them, had ruled them out. Almost all involved some degree of conflict between the two countries and discussing them would have set the wrong tone for the conversation, or given Zhang the impression that Knowles was proposing a trade on one of them in exchange for help with Fidelian.

  ‘Mr President,’ said Knowles after a couple of minutes, ‘I would like to turn to a matter in which I think there may be an opportunity for further cooperation between us.’

  ‘Perhaps we should discuss the situation in South Africa,’ came back the reply. ‘We must find a more effective way of encouraging a restoration of the constitutional position in the country without being seen to impose our wills as foreign powers.’

  ‘That’s true, President Zhang, we must not impose our will. On the other hand the people of South Africa have a constitution and they deserve to be able to live under its terms.’

  ‘There are different ways to do this,’ said Zhang.