End Game

by Matthew Glass

  ‘Well, someone knew something.’

  ‘That’s right. It’s either from us or Morgans. I haven’t heard any realistic numbers mentioned so I don’t know how much anyone really knows but … yeah, someone knows something and they’ve been shorting us like hell.’

  ‘And you’re going to announce all this at your quarterlies?’ said Rabin.

  ‘I was going to. Now I don’t think we can hold out that long.’

  ‘I was going to say …’

  ‘We’re running out of cash. The rumor mill is killing us. Money’s flowing out the door. I got margin calls and I’ve got guys on the repo desk telling me they can’t roll our paper. You want to know what a nightmare is, you should come sit in on our credit meeting this afternoon.’

  ‘Bill, when you say you’re running out of cash, what are we talking about? Weeks?’

  ‘Days.’

  ‘Days?’ demanded Opitz. ‘You’ve got days left and you’re not talking to us.’

  ‘Yesterday I thought I had weeks.’

  ‘How many days?’ said Rabin.

  ‘Three. Four maybe, depending on how it plays out.’

  Opitz and Rabin stared at the CEO. His face was creased in misery.

  ‘I’m going to have to make a statement. I can’t keep holding out. Every damn analyst out there is demanding that I preannounce our earnings.’

  ‘A statement?’ said Rabin. ‘Bill, what the fuck are you gonna say?’

  There was silence.

  Going into this meeting, Susan Opitz had hoped that whatever was going on at Fidelian, it could at least be held back and the bank kept stable until after the election, which was ten days away. But this wasn’t going to keep that long. Even if he could withstand the pressure from the analysts to say something, if Custler believed he wasn’t going to be able to raise the money, he had a fiduciary duty to inform the market. This wasn’t going to keep until the election. It was barely going to keep until tomorrow.

  ‘I can’t believe you haven’t come to me earlier,’ said Rabin.

  ‘What can I say?’ said Custler. ‘Only yesterday, the day before, it didn’t look that bad. The shorts have been hammering us, absolutely hammering us.’ He looked up hopefully. ‘Why don’t you ban them like you said you would?’

  ‘That’s not going to save you, Bill.’

  ‘No.’ Custler shook his head a number of times, eyes gazing blankly at the floor.

  ‘If you make that statement, Mr Custler, that’s the end. No one’s going to deal with you.’

  Custler looked at Opitz helplessly. She wasn’t telling him anything he didn’t know already.

  ‘Mr Custler, you need someone to put in a big slug of cash or you need to sell this bank to someone who’ll take on the liability. Have you considered that?’

  Custler gazed at her.

  ‘Bill,’ said Rabin, ‘have you been talking to anyone?’

  ‘I’m not authorized to do it.’

  Rabin looked at him doubtfully. Wall Street CEOs didn’t necessarily like each other, but they knew each other. They all knew which firms they would consider partnering with if they ever got into trouble and which deals would be a non-starter. They also knew which major investment funds might be looking for an opportunity at any given time. If things were as bad with Fidelian as Custler said, Rabin would have been extremely surprised if he hadn’t been talking to a number of parties.

  ‘What do you mean you’re not authorized?’ he said.

  ‘It means I’m not authorized. My board has told me not to.’

  ‘Your board has what?’ said Opitz.

  ‘Bill, do they know the situation?’ said Rabin. ‘Up to date? What you’ve just told us?’

  Custler nodded.

  ‘Well, I don’t know about your board, Mr Custler, but you need a buyer. Before you make a statement to the market you need to have a buyer for this bank.’

  ‘I agree with the secretary,’ said Rabin. He didn’t much care about the political timing, but he cared about the chaos that would ensue if an investment bank of Fidelian’s stature announced, effectively, that it was bankrupt without any rescue plan in place. ‘We need to have a buyer. Bill, I hate to say this, because I know you’ve got your job at stake as well, but if your shareholders really aren’t going to put the cash in we’re going to need to find a buyer who’ll take it on, whether they like it or not.’

  ‘Mr Custler, your shareholders are going to have to make a decision. Either they put the money up or they get the hell out of the way and let someone else do it for them.’

  Custler didn’t speak.

  ‘Someone saves this bank,’ said Opitz. ‘Someone saves it in the next week. So it’s either your guys or someone else. This bank does not go down. You do not make that statement until we have a buyer.’

  ‘Bill, we’ll let you hold off on the statement until we’ve got someone. Until then, we’ll keep you alive if we have to. We can’t let you fail. There’ll be way too much effect on other banks to let that happen. That mistake was made once already, and once was enough.’

  ‘We’re not going there again,’ said Opitz. ‘This administration is not even thinking of going there. And not now. No way. We need to get this fixed right now. Mr Custler, you need to get that very clear. You need to sell this bank.’

  Custler smiled ruefully.

  ‘What?’

  ‘Secretary Opitz. I don’t think you understand. You’re talking to me as if I own this bank. I only run it.’

  19

  THE PRESIDENT HAD just come out of a meeting with the Syrian prime minister and was supposed to be debriefing with Bob Livingstone and his chief Middle East negotiator. Instead, he found himself listening incredulously to what Susan Opitz was telling him on the phone from New York.

  ‘I don’t even think I want to save these bastards,’ he said.

  ‘Mr President, we have no choice. You let a bank like Fidelian go, and the losses ripple all the way through the system. It’s going to be bad.’

  ‘How bad?’

  ‘It’s not 2008, but the whole sector will take a hit. Lending between banks is going to slow if not stop completely. The banks won’t know who they can trust so they won’t trust anyone. The actual value here isn’t enormous, Mr President, it’s the effect on confidence. We’ve said for the past two years, ever since we took office, that the sector is back on track. We’ve made a big play of keeping a tight grip on it, and if something like Fidelian falls over at the first wobble then in terms of confidence we’re back to square one.’

  ‘I think what the secretary is trying to say,’ said Abrahams, ‘and if you’ll excuse the French, sir, is we’ll be screwed.’

  The president glanced briefly at Abrahams and shook his head in disbelief. Roberta Devlin had made sure that Marty Perez was in the room as well. Ron Strickland, who had already been briefed by Opitz and Rabin, was on a line from the Fed.

  ‘There are two immediate steps we need to take,’ said Strickland. ‘First, we need to make sure this bank can survive until the situation’s resolved. We’re putting together a short-term special liquidity facility they can access at commercial rates. They deposit assets in exchange and we’re first cab off the rank if they go bust so the taxpayer’s protected. Other banks will be able to access the facility on the same terms if we deem it necessary. Now, the second step, Mr President, is resolving the situation. The liquidity facility keeps Fidelian going in the short term, but once they announce their writedowns, they’re finished. So we need a buyer. In order to get a–’

  ‘Mr Chairman,’ interrupted Abrahams, ‘when you say the short term, how long are we talking about here? Days? Weeks?’

  ‘Days,’ said Jerry Rabin.

  ‘What makes that the time scale?’

  ‘There are too many rumors now. No one’s prepared to lend them any money, and anyone who’s got money in there is trying to get it out. They’re literally bleeding to death. They need to make a statement and any statement they make is o
nly going to confirm what the market has already guessed. If they don’t make a statement – it’s just as bad. In this situation, silence is guilt.’

  ‘And to be absolutely clear,’ said Abrahams, ‘they’ll be at this point, where they’re forced to make this statement, within days?’

  ‘They’re there now. They can hold off a little longer as long as we’re giving them liquidity. Without that, they’re dead.’

  There was silence.

  ‘By announcing the liquidity facility we also help stem the panic in the market,’ said Rabin. ‘Everyone knows the Fed’s there if they need us. We don’t have to say who’s using it.’

  ‘And Jerry,’ said the president, ‘let me understand this. You’re saying we can get a deal done for someone to buy this bank in a time frame of days. Is that right?’

  ‘If we get right on it. It’s going to take a hell of a lot of work from us and possibly some pressure from you.’

  ‘Can’t we wind them up?’ Knowles glanced at Marty Perez as he was speaking. ‘Wasn’t that part of the package Obama brought in about winding up bankrupt investment banks in an orderly manner?’

  ‘This’ll be the first time,’ said Rabin.

  ‘Well, there’s a first time for everything.’

  ‘It won’t appease the market. This isn’t like a retail bank that goes bust where the FDIC takes it over and it keeps running. These guys shift billions in short-term finance each day and they’re a counterparty in trades to just about every other bank on the Street. No matter how you do it, the so-called orderly wind-up is going to be damn messy. In the meantime, every other investment bank is going to be looking around to figure out who’ll be hurt most by Fidelian’s failure until the wind-up’s complete. Then they don’t lend to them. Then they’re under pressure, and so on. It’s a bunch of dominoes. The only way to stop Fidelian falling against the next one is either to get the cash from its shareholders or sell it so everyone’s happy they’re covered.’

  ‘And we don’t think we’re going to get the cash from the shareholders?’

  ‘Doesn’t look like it,’ said Rabin. ‘And there’s no way they’ll get it from the market, so we have to sell it to someone who’ll put that money in.’

  The president calculated. The midterms were on Tuesday week, November 6. That gave him twelve days. ‘Realistically, at the quickest, how long does it take to do a deal?’

  ‘It’s been done overnight, Mr President, if you’ve got the buyer. That’s what you need. You don’t have a sale if you don’t have a buyer.’

  ‘Do we?’

  ‘Not yet. We haven’t started asking. The Fidelian board has told the CEO, Bill Custler, not to go looking for one yet, but he’s going back to talk to them. In the meantime, we’re going to start looking anyway. Apparently Goldman was interested in Fidelian’s fixed income business a while back. At one point Barclays was looking at their brokerage. Ideally I’d like to be able to sell this thing as one piece but it may be we have to break it up. We’re just going to have to figure it out as quick as we can.’

  ‘What if no one wants it?’

  ‘I’m hoping they’ll see it’s in their own interest to make a sale happen. You only have to mention Lehman.’

  ‘And is there no possibility that their shareholders might agree to bail them out?’ asked Abramans.

  ‘I wouldn’t bank on it, but when they’re actually faced with the prospect of having to sell, they might find the money. As I said, Custler’s going back to talk to them.’

  ‘And don’t forget,’ said Marty Perez, ‘those same shareholders will have got the message Bob Livingstone gave them.’

  The president nodded. He didn’t know how much good that had done. All that had come back from the Chinese government was a combative statement about the PIC only ever having acted as a value-driven investor.

  He looked around. ‘Okay. And we’re going to try to keep this quiet. Is that right?’

  ‘At least until we have a buyer,’ said Opitz.

  ‘The worse things seem to be,’ said Rabin, ‘the more the value drops to a buyer. We’ve got a much better chance of selling this bank if it’s still doing some business.’

  ‘Well, that’s fine. We’re going to have a buyer tomorrow, right? Overnight, isn’t that what you said?’

  ‘I don’t think it’ll be quite overnight, Mr President.’

  ‘I don’t need to remind you about what’s happening in twelve days,’ said Knowles.

  ‘No, sir.’

  ‘Okay, thank you. Keep me informed.’

  He cut the line.

  ‘Stay here,’ he said to the others in the Oval Office. He put his head out the door and asked his personal secretary to get Gary Rose.

  ED ABRAHAMS GAVE Rose a summary. The president stretched back with his hands behind his head. ‘What do you think?’ he said.

  The national security advisor considered for a moment. ‘There are a number of ways to interpret it.’

  ‘Give me the best.’

  ‘The best? It’s a market event. Simple as that. We’ve got a bank with a bunch of bad loans, the market sniffs a bad smell, that infects the rest and … we have what we have.’

  ‘Give me the worst.’

  ‘I’m not a finance expert, but I’d say … the Chinese are killing this bank on purpose.’

  The president looked at Perez. ‘Is that possible?’

  ‘Sure. Technically, yes, it’s possible. If you refuse to do what’s necessary to stop a bankruptcy or to sell the company then obviously you’re killing it. Would they be doing it? What’s the rationale?’ Perez shrugged. ‘An entity like the PIC has enormous numbers of investments. Theoretically, they could have a whole bunch of bets placed on the market going down and they’re using this one company to help make it happen. They sacrifice the value at stake in Fidelian for the money they make out of everything else. Is that possible? Yes, absolutely, it is.’

  ‘That couldn’t be legal,’ said Devlin.

  ‘No. It would be market manipulation on an absolutely massive scale.’

  ‘You know, Gary,’ said the president, ‘I don’t think that’s the worst case.’

  ‘That they’re doing it on purpose? You don’t think that’s the worst case?’

  ‘No, not that they’re not doing it on purpose, but that they’re not doing it for money.’

  ‘That’s true. But that was part of the message we gave them, right? If they’re doing this to influence our political process, they’d better stop.’

  ‘Why would they be trying to influence the midterms?’ said Abrahams. ‘Why now? Why these ones?’

  ‘There’s any number of reasons,’ said Rose. ‘Uganda. South Africa. A general desire to throw their weight around.’

  ‘Because they can, is that what you’re saying?’

  ‘Maybe. Like those aircraft carriers they’ve built over the last few years. What are they going to use them for? Why do they need a blue ocean navy? But they want to have them. And they want us to know they have them.’

  ‘This isn’t aircraft carriers,’ said Abrahams. ‘This is our economy.’

  ‘And maybe they want us to know what they can do to it.’

  ‘But it’s their economy as well,’ said Devlin. ‘We hurt – they hurt. You think Zhang would take a risk like this? He’s all about stability, right?’

  ‘Absolutely.’

  ‘Then if it is political, and if they got the message, they’ll stop. They’ve made their point. I guess … What will they do?’

  ‘They’ll find the cash for Fidelian,’ said Perez.

  ‘Let’s say it’s not the worst case,’ said the president, ‘and actually we’ve got this Chinese investment fund acting like a genuine investor and they don’t want to throw good money after bad. Let’s say that’s what the issue is.’

  ‘Then Susan needs to find a buyer.’

  ‘Can we really do it in the time? We’ve got twelve days.’

  ‘We need it done way quicker than t
welve days,’ said Abrahams. ‘We’re not waking up the day before the election with this still going on.’

  ‘Half of Wall Street got sold in ’08 and it took about twenty minutes,’ said Perez. ‘You can do it if you’ve got a buyer.’

  ‘What gets us a buyer?’

  ‘Greed,’ replied Perez. ‘The chance to pick up a rival operation in a fire sale.’

  ‘What if the operation’s too bad for that? What if a fire sale price isn’t even cheap?’

  ‘Fear. Fear by other bankers that their own businesses will be hit. You get them afraid enough of that, they’ll buy it in an hour.’ Perez smiled. ‘Those are the only two emotions bankers know, fear and greed. Build up one or the other and they’ll do whatever you want.’

  Knowles thought about it. ‘Okay. Even if we get this sale done, it’s not going to look like good news, no matter how we sell it. At best, it’s going to look like less-than-bad-news. We need some good news. Every damn day it’s the markets. Dean can’t get hold of the agenda.’

  Tom Knowles’ approval rating had fallen with the markets over the last couple of weeks. He was down to around fifty per cent, the lowest point in his presidency. Every Republican in a tight race was taking a hit on the president’s behalf. Some had asked the president to cancel trips to speak with them. They were finding they did better in the polls if they weren’t identified with him.

  ‘What we need is a foreign policy crisis,’ said Rose, only half-jokingly. ‘We should talk to the Pakistanis.’

  ‘Good news,’ said the president irritably. ‘For Christ’s sake, Gary, I said good news, not some explosion in outer fucking Waziristan.’ Knowles drummed his fingers impatiently on his chair. He could feel time ticking towards the midterms, day by day. And cancellations by Republican candidates were embarrassing. His crowded campaign schedule had been the subject of public discussion and suddenly there was a bunch of gaps that had to be accounted for without admitting that Republican candidates didn’t want to be seen with him. ‘What about Jungle Peace?’ he said suddenly. ‘What the hell’s happening with Jungle Peace?’

  Abrahams nodded. ‘Score a big hit. Get that on the front pages.’