Simon was Sam’s boss, Sam gave me a bit of background on him. He’d founded Psmith & Graves twenty years earlier in London. There was no Psmith.
“‘Homage to the master,’ is how he explains the ‘Psmith,’” said Sam. “The ‘p’ is silent. Simon gave a newspaper interview in the early days, which he framed and he has it hanging in the men’s room of our London office. Anyway, P.G. Wodehouse invented Psmith. Wodehouse started at a bank. Psmith in the City reputedly describes the characters he trained under with perfect accuracy. Wodehouse couldn’t get the hang of banking. Simon told the press he hoped to do better.”
They had. In due course, Psmith & Graves added offices in Geneva and Moscow, as well as in Hong Kong, where Sam was in charge. “Aggressive money management, risk arbitrage and mergers advice: any deal in the market, we can find a way to help our friends. That was Simon’s business model from the beginning. The combination raised eyebrows, but Simon has always employed first-class compliance staff. There’s never been a scandal.
“Don’t be shocked when you meet him,” Sam warned me, “Simon wears high heels – not boots, you understand, four-inch stilettos.”
“I’ll have to think about that,” I said, “but wherever the Chaos’ money came from – returning to our previous conversation – Mercury’s grandfather was a banker of genuine distinction.”
“And how would you know that?” said Sam, finally choosing to tease me.
“Amanda must have told me.” Actually it had been Cedric.
“Meaning that Mercury told her,” said Sam.
Again I ignored Sam’s invitation to disparage my rival.
“I see Mercury’s name in the paper a fair amount. He goes up to Beijing for those kiss-ass receptions. But he can’t be a communist. Harrow, for Christ’s sake! Is he even really Chinese? I mean, how many characters do you reckon he knows?” Sam could read Chinese himself, I subsequently discovered, but he didn’t advertise it.
“Mercury’s first language is Cantonese, and his spoken Mandarin is pretty good,” I said, “but he reads and writes Chinese poorly. Amanda tells me that’s true of a lot of his contemporaries. His English is perfect, though – as are his suits.”
“And he’s a steward of the Jockey Club,” Sam interjected. “I suppose he’ll eventually be its chairman.”
It told you a lot about Mercury that he wanted to be chairman of the Jockey Club. It used to be said that the three most powerful people in the Crown Colony were, in ascending order, the Governor, the chairman of the Hongkong Bank and the chairman of the Jockey Club – which was a way of making the point, relevant to all societies, that not all power is overt, and that some of it comes from social position. “It sometimes seems to have escaped Mercury,” I told Sam, quoting Cedric without attribution again, “that Hong Kong is under new management.”
“All Chinese like gambling,” said Sam. “But I hear you.”
Sam suggested we take a break while he checked his messages and asked his secretary to get us coffee. She brought it on a silver tray. There were cups, a small coffee pot, a sugar dish and a cream pitcher, all in matching porcelain, plus small linen napkins and silver spoons.
“This is Peony,” said Sam. She turned and smiled at me as she left. She was wearing Chanel No. 5 and looked it.
“I gave it to her for Christmas,” said Sam in response to my raised eyebrows. He evidently assumed I would recognize the scent. “Very unsuitable present. I’m not sleeping with her but I want her to think I might some day. Keeps her loyal.”
He said nothing for a minute – presumably thinking about Peony. Then it was his turn to lecture me.
“It will not be enough,” he began, “to assert that you know how to run the bank. People must believe that you took over several years ago, that Henry has been crushed and has gone away to die out of shame. You must never say so. You can’t get someone else to say it. Those shareholders who never vote but will turn against you if you falter must decide it is true without any prompting. They must believe it is a secret they have discovered. Henry taught himself to be a banker, as far as I can see, so there is no reason we can’t get people to believe you have done the same.”
“Where do you get these ideas?” I asked him.
“Armenia,” said Sam.
The traditional way of getting Chinese people to believe something is to do nothing, but to impart to your immobility the tiniest bit of spin. This suited me because, to be honest, I wasn’t ready to pull the sword from the stone just yet.
So on Monday I told Pearl River Bank’s version of Old Ng, whose name was Peter Chen, to chair the Credit Committee meetings in Henry’s absence, and for two weeks I worked from home. I sat at the long wooden table in the library, surrounded by the books Henry loved, going over the financial arithmetic Sam had taught me.
Pearl River had one billion shares, which the market valued at 15 Hong Kong dollars apiece. The recent run-up to 16.50 had to be seen as takeover speculation. At a “compelling premium,” which Sam defined as 40 percent over the 15-dollar unaffected price, a bid for 100 percent of Pearl River Bank would require 21 billion Hong Kong dollars, or more than two and a half billion U.S.
No one could make a bid for the bank without having enough resources to buy 100 percent of the shares. There was a regulation about that. In fact, a bid for a company had to be made through a bank – an independent bank, that is, though it could be the investment bank advising the bidder – which had to certify that the money was there. Commercial banks normally have plenty of cash, or can raise it easily by issuing certificates of deposit or selling securities from their portfolio. Chao Yinhang had total assets of roughly 180 billion Hong Kong dollars. It could find the cash for a bid, and the merchant bank making its offer would happily certify to that effect. What would constrain them both would be Chao Yinhang’s need to maintain an adequate capital ratio. To do that, it would need to sell common stock to finance a portion of the bid, or make its offer “part cash/part shares” – that is, use its own newly issued shares as part of the consideration it paid for any Pearl River Bank shares that were tendered.
Chao Yinhang had 1.2 billion shares outstanding, which traded at 16.65, so their market capitalization was somewhat higher: 20 billion versus our 15 “unaffected.”
Sam came to the Castle one afternoon to discuss Pearl River Bank’s options – and presumably to check out my situation. I used the occasion to probe other areas.
“So why does Simon wear high heels?” I asked.
“There is no obvious explanation,” said Sam. ”He doesn’t wear an earring or engage in dangerous sports. Part of him is quite normal.”
I learned that Simon had a wife in Gloucestershire, to whom he returned each Friday afternoon, and who had given him five obstreperous children. He and Clarissa didn’t take separate vacations. When they went to parties in London, she wore high heels too, though typically of a more conservative style. Every so often a drunk or a journalist would ask him why he did it, and his answers varied: “To be taller,” or “For the pain.”
“People in the City have stopped noticing,” Sam said.
Song brought us coffee in the library. Sam was as curious about her as I was about Simon. He said hello in Cantonese and then in Mandarin. She acted as if he wasn’t there.
Because both banks had capital ratios well above regulatory minimums, Sam believed Chao Yinhang could manage an offer that was 50 percent cash. The more cash in the offer, the “stronger” it would be, because accepting cash is easier than deciding to take someone else’s shares.
Sam believed that even if Henry hadn’t gone missing, market conditions favored a bid. “Goodwill,” which is the excess over book value that one company pays for another company, is a deduction from regulatory capital. So a greater proportion of shares is required as the bid price/book ratio goes up and the amount of goodwill created increases. Hong Kong banks traded for years at roughly two times book value, thanks to the fat margins on their mortgage portfolios. But
since the Asian Financial Crisis, which started in 1997 with the collapse of the Thai baht and then spread around the region, financial institutions’ results had become more variable. Interest rates were decontrolled in Hong Kong, leading to more competition. Speculation about Hong Kong’s future, and whether Beijing would let the renminbi float, pushed property prices up and down. Just lately there had been a whiff of pessimism, a pull-back in the level of construction – Hong Kong’s principal industry – a resulting spurt in unemployment, and an increase in non-performing loans. The local banks in Hong Kong were trading around book value.
“If Mercury Chao has the balls to pounce,” said Sam, “this is the best moment in years.”
There was a clatter outside the library door, and three men went by carrying stepladders. “Sorry,” I said to Sam. I explained that the spurt in unemployment had brought new servants to the Castle.
This happened from time to time, and I paid little attention to who they were or why they didn’t stay in our employ for long. These three were painters and Song had put them to work freshening some of the unoccupied rooms, including the one where I kept my guilt-inducing exercise bicycle. Sam wasn’t interested in my exercise program. He left soon afterwards.
There was quite a lot of coming and going in the hall, and it would have been easier to work at the Bank, but I liked being at the Castle. One advantage was that I avoided having to cope with my secretary’s consternation, or face what I assumed would be the scorn of Henry’s secretary, Catherine. I say “consternation” because Phyllis operated on the assumption that if she brought me coffee and straightened the papers on my desk with sufficient diligence for enough years, she would in due course become head girl. Henry’s mysterious disappearance, which should have triggered her ascension, had not done so and Phyllis got flustered when events did not conform precisely to her expectations. A simple change in my undemanding schedule used to alarm her. “But I thought,” she would say, and there would be nothing further to the sentence. I say “scorn” because Catherine knew there was no way I could replace Henry. She knew how undemanding my schedule had been. She knew everything.
The noise in the hallways of the Castle included a lot more Mandarin than Cantonese. Song said the painters were recent arrivals from the mainland. That’s why they’d been the first workers in their crew to be let go.
Song came in to check on me every hour or so. The library door would open and she would present herself, standing straight as a dancer in her uniform of navy blue silk tunic and trousers, and ask if I wanted anything, or just look at me for a few long seconds, as if to be sure I was there. At lunchtime she brought me a bowl of noodles, which reminded me of my first weeks at the Castle, when Amanda was a pretty girl in a silk dress.
Amanda was a tai-tai now and dressed more conservatively, but Song had changed very little. She wore her hair in pigtails, but she had a severe and handsome adult face, so that one’s impression of her flickered like a leaf in the wind: now green, now gray; now schoolgirl, now schoolmistress. I guess she had decided it was time we established diplomatic relations.
6
Mercury had to want to pounce. With prices low, he could use a higher proportion of cash, leaving him, and his friends, with a higher percentage of the shares. He could easily close a couple of dozen overlapping branches, and the resulting savings in rent and salaries would be referred to as “cost synergies.” The combined organization would earn more and earnings per share would increase, so Chao Yinhang’s shares should trade up.
More significant from Mercury’s perspective was the fact that the transaction would double the size of the bank, making him a more important figure than he already was. It would please the Hong Kong Monetary Authority, which had been vocal in its eagerness to see the local banks consolidate. And it would reinforce Mercury’s vision of himself as a patrician – and of Henry as a peasant who had risen above his station because he spoke perversely good English.
Chao Yinhang traded at a higher multiple of book, and at a higher multiple of earnings, because…well, because it always had. In a straight-up contest, however, where people had to decide which of them should run things, it would be hard for Mercury to prevail. The business community knew Henry was a smart banker, and that Mercury was not. But I was an unknown. Mosquito’s “not Chinese” was an appeal to prejudice, but “not banker” was fair comment.
Fair, but no longer totally accurate. When I married Amanda, Henry had set about training me to be a banker – but slowly. One might even have said half-heartedly. He put me on committees and had me receive the memos that circulated regarding important loans – what covenants we would insist on, what pricing we would accept – but he never assigned anyone to teach me credit analysis, or explained the bank’s strategy. I was expected to pick that up, if at all, by osmosis.
At the same time, he encouraged me to continue my Chinese studies, to furnish my office as a traditional Chinese gentleman-scholar would have, to be an ornament to the family. “Literacy in Chinese,” he said, “is – as you know – a lifetime endeavor. You must practice every day, like a musician or a dancer. I cannot. Characters keep falling out of my head. I now read English better than I read Chinese. You have the talent, Wendy. I can give you the time.” So for eight years I had been two kinds of dilettante: as a reader of classical poetry and as a reader of credit files. There were times I felt like one of those expensive tropical fish some companies keep in a tank in their waiting room.
In the past year, thanks in part to conversations with Cedric Fung, I had come to understand Henry’s approach. It reflected his belief that all the important hazards in banking are invisible.
Managing liquidity risk, as I’d seen at Branch 38, is a dance with fear. All loans look good when they come to Credit Committee. To run a bank, you have to be able to see around the corner. And that capacity is only acquired by patient listening. What Henry saw in me was someone good at memorization – literacy in Chinese is memorization – good at accumulating worthless information, but rather a “straight ahead” style of learner. So like Mr. Miyagi in The Karate Kid, he’d given me a fence to paint, a job that would occupy part of each day, without explaining his reasons.
The fact that I had begun to understand him – understand banking, in fact – was unfortunately invisible to the gossiping and investing public. On Sam’s analysis, that was fine. But he said I should be seen around town, so I took a table at a charity ball I would normally have ducked, and I paid 200,000 Hong Kong dollars in the auction for an hour in Cathay Pacific’s flight simulator.
Song showed me the result in the next day’s Mosquito: a photograph of me in evening clothes, smoking a cigar, with the caption, “Big Wendy maybe not care if Henry stay away.”
“What do you think, Song?” I asked in Mandarin. My Hakka isn’t fluent, and she always made it clear she wasn’t Cantonese, so we compromised by speaking the official language of the People’s Republic, which as a schoolgirl she had been required to learn. Because Chinese has so little grammar, a direct translation sounds like pidgin English. When she was being ironic, she sometimes spoke that.
“‘Big’ is good,” said Song.
I went to a Sotheby’s exhibition with Cedric. This was quite helpful, and not only because he is an experienced collector. Cedric was to Mercury what Mercury was to Henry: old money. You did not ask Cedric where the money came from, but by the late nineteenth century there had been enough of it to allow Cedric’s great grandfather to buy a lot of land. The porcelain in Cedric’s collection was more expensive than anything I could even contemplate. He’d started collecting early, which always helps, but since the Fungs still have the land Cedric’s great grandfather acquired, plus the office towers Cedric built on that land after tearing down the apartment buildings his grandfather had built, plus according to rumor a few percent of the Hongkong Bank’s London-based parent, HSBC – said multi-billion-dollar stake having been accumulated as successive generations of Fungs collected more rent
than they needed to live on – since Cedric was extraordinarily wealthy, that is, he could pretty much have whatever he wanted. Hong Kong people respect people like that. And they notice who they choose for friends.
I’d only met Cedric a year earlier. Henry introduced us at one of those charity balls and he soon became my mentor. I thought at first that he might be a trifle “slow,” or had had a stroke. He spoke softly, moved slowly, looked straight through people if he didn’t wish to engage, but with a naturalness that never gave offense. I learned from Henry that he was a serious philanthropist, but he never advertised it. He might have underwritten a charity’s annual ball, but when you encountered him at the event he managed to give the impression he was only there as a favor to one of the organizers who’d had a last-minute drop-out from her table.
My new interest as a collector was ceramic curiosities: serving dishes that look like gnarled logs, lizards from whose mouth you can shake chili flakes, that sort of thing. Cedric told me he had his eye on a particular celadon bowl. He’d arrange to take a private look at the bowl after hours if he got serious and bid by phone on the day. But he wanted to decide if it was worth the trouble. Because he was regarded as an expert, others would bid against him if his interest became known. So we primarily lingered in rooms where the bowl wasn’t, and he allowed himself no more than ten seconds to appraise it on the way past, as I pretended to be studying my catalog and looking for a condiment set that resembled a stand of toadstools.
Afterwards, walking from Sotheby’s to the Hong Kong Club, he gave me a lesson in connoisseurship. That pitcher shaped like a frog looked rather new. Was there a provenance in the catalog? “It is really quite difficult unless you can touch these objects,” he said. “You get a sort of feeling about their legitimacy. My great grandfather said the same thing about correspondence files, by the way. He was a merchant as well as a property investor. He said he could tell that a customer account was about to go bad, just by handling their letters.”
The Daughters of Henry Wong Page 5
