End Game

by Matthew Glass

‘That’s not in any way a contractually binding acceptance, sir,’ said the Fidelian general counsel, who was the other executive who had come with Custler. ‘It’s an estimate of the board’s definition of the full market value.’

  Rabin peered at the paper. So did the other two Fed officials who were with him in the meeting.

  Bill Custler watched them, wincing slightly.

  Rabin pushed the paper back across the table. ‘That’s a joke, Mr Overbrook. That’s a joke and not a very funny one.’

  One of Rabin’s officials cleared his throat. ‘We’ve been talking to a number of parties who might possibly have been interested in acquiring … ah … the whole or parts of Fidelian Bank. We have … ah … one party–’

  ‘We have a buyer,’ said Rabin impatiently. ‘But your figure is a joke!’

  ‘Yes,’ said the official. ‘We have one buyer who is potentially prepared to acquire the entire enterprise and we have … ah … a number who would be interested in various parts of the operation.’ He took a page out of his briefcase and pushed it across the table. ‘Naturally these are all indicative numbers and subject to due diligence but I … ah … believe they are all genuine expressions of interest and actionable within a very short period of time.’

  ‘Immediately,’ snapped Rabin. ‘We need to get this done today. We need to get this done, signed, sealed and announced as soon as the markets close for the weekend.’

  Custler looked at the page. Privately he thought the offers were good, even generous, but he couldn’t say that. ‘You know they’re going to game us, Jerry.’

  ‘That’s not going to happen.’

  ‘Of course it is. They’re going to turn around when we’re five minutes from signing and say they’ve found something in the due diligence and they’re going to halve it.’

  ‘They’re not. I guarantee you they’re not.’

  ‘Then they just want to see our books so they can figure out how to protect themselves and make some money against us when we go down.’

  ‘Bill, these are real offers. They know the situation. Understand me? They know.’

  Custler understood. That meant all of Wall Street would soon know the details. This could only be kept quiet for so long.

  Custler stared at the page. If it was up to him, he would have jumped at it. He sighed. ‘Well, it ain’t happening, Jerry. That number Dick showed you, that’s what we need.’

  ‘That number’s ridiculous.’

  ‘And those are fire sale prices,’ said Overbrook, pointing at the Fed’s paper.

  ‘Well, it may have escaped your attention, Mr Overbrook, but you’re in a fire. Bill, I’ve got you a buyer. Personally I’d take that route, but if you don’t like that one, there are others who’ll take it in pieces. You need to start talking to these guys. You need to start doing a deal.’

  Custler shrugged. ‘Jerry, it ain’t happening. I don’t know how else I can say it. That’s the number I need. Otherwise, I’m just going to have to make my announcement. I can’t keep holding off.’

  ‘Don’t you try to blackmail me!’

  ‘I’m not trying to blackmail anyone,’ said Custler wearily. ‘Jerry, I’m just telling you the facts.’

  Rabin stood up. He paced around the room, shaking his head in exasperation. Suddenly he stopped and turned on Custler. ‘Bill, what are you doing here? You want to turn Fidelian into some kind of Lehman? Is that what you want to be, the next Lehman?’

  Custler shook his head.

  ‘You want to be the next Dick Fuld?’ demanded Rabin, his voice rising. ‘Is that how you want to be remembered, Bill? Like Dick Fuld?’

  ‘No!’ retorted Custler, the pain and humiliation of his position bursting out of him. ‘What the fuck do you think I want? Jesus Christ, Jerry! I’ve been thirty-four years in the industry and you think I want to end it like this?’

  ‘Then how the fuck do you want to end it?’ yelled Rabin.

  ‘How the fuck do you think?’ Custler yelled back.

  There was silence. Both men were breathing heavily.

  Rabin sat down again.

  ‘I don’t own this bank,’ said Custler quietly. ‘Why can’t you understand that? These aren’t my decisions. These are decisions for my board, and they are not leaving it to me.’ He looked down at the page with the figures Fidelian’s rivals were prepared to pay for its operations. ‘I can tell you they won’t sell for that kind of money. Nowhere near it. If you can get people to triple those numbers, maybe we’ve got something to talk about.’

  ‘There’s maybe ten per cent flexibility in there,’ said Rabin.

  ‘Jerry, what if they really believe we’re going to go bust? What if they really, truly believe that unless they cough up this money, we’re going bust with all that means for all of them?’

  ‘They do believe it.’

  ‘They’ll lose way more money if we go bust than they’re prepared to pay on these figures.’

  ‘Trust me, Bill, they believe it.’

  Custler pushed the paper back across the table. ‘They couldn’t.’

  Rabin pushed Custler’s paper back in the opposite direction. ‘Your shareholders are in dreamland.’

  Custler sighed heavily. ‘Look at it from their perspective. What’s in it for them if they agree to the kind of sale you’re suggesting? For that money, they may as well let the thing go bust.’ Custler pulled back Rabin’s paper. ‘I mean, you’ve got an offer here of fifty million for our Eurobonds trading operation.’

  ‘Your Eurobonds operation isn’t exactly a market leader.’

  ‘That’s your opinion.’

  ‘Look, I agree, some parties are fishing for what they can get. Look at the other bids. You’ve got some very respectable offers for other parts of the business. And you’ve got a very acceptable unified bid for the whole enterprise which comes with the twenty-three billion of capital your operation needs to keep going.’

  Overbrook snorted. ‘Acceptable to who?’

  Rabin ignored him. ‘Bill, if your shareholders aren’t prepared to back their own bank with more cash themselves, that’s what you’re going to get left with. They’re creating the problem for themselves. Why won’t they put more in?’

  ‘I don’t know. I don’t know their cash position. Maybe they don’t have it.’

  ‘No one’s going to believe that.’

  ‘Mr Custler,’ said one of the Fed officials, ‘have you been encouraged to undertake risky activity at Fidelian?’

  Custler looked at him in disbelief.

  ‘Do you think your shareholders have directed the bank’s activity in a way that is inconsistent, say, with other banks where you’ve worked?’

  ‘No.’ Custler looked back at Rabin. ‘What is this, Jerry?’

  ‘We’re just trying to work out what’s going on.’

  ‘I’ve told you what I know. I’ve told you where we are.’

  Rabin glanced at his officials. Suddenly he turned back to Custler. ‘How much do they control?’

  ‘Who?’

  ‘The Chinese government.’

  ‘The People’s Investment Corporation has twenty-five per cent, give or take,’ said Overbrook.

  ‘We’ve seen the numbers.’

  ‘Then you know that.’

  ‘How much else?’

  Overbrook was silent. He glanced at Custler.

  ‘How much?’

  ‘We think they’re probably around forty,’ said Overbrook quietly.

  ‘But you don’t know?’

  ‘We have no way of identifying the links between our shareholders, sir. My understanding of the PIC is probably no better than yours, in fact it’s probably a lot worse, but I believe they have literally hundreds of subsidiaries.’

  ‘So where does the forty per cent number come from?’

  Overbrook was silent.

  ‘I’ve been told,’ said Custler.

  Rabin stared at him. ‘You’ve been told outright?’

  ‘PIC officials I’ve dealt w
ith have indicated that’s the proportion of votes they can control. I haven’t got anything on paper.’

  ‘You realize,’ said one of Rabin’s officials, ‘if that’s the case, and they haven’t declared that, they’re committing a federal felony.’

  ‘With respect, sir, I don’t think Mr Hu at the PIC is too worried about threats of a federal felony.’

  ‘Well, he should be.’

  ‘Al,’ said Rabin to his official, ‘let’s not get hung up on the legalities. A three-year court case isn’t going to solve our problem today.’

  ‘That’s right,’ said Overbrook pointedly. ‘Open that can of worms and you’ll find half of Wall Street in there.’

  There was silence. Facing a shareholding of that magnitude, none of the other shareholders could do anything without the PIC giving a lead.

  Rabin looked at the three men seated opposite him. ‘So what are we going to do?’

  There was no reply.

  ‘Bill, can you talk to them again?’

  ‘And do what, Jerry? Threaten them with a court case?’

  Rabin put his finger on the paper with the offers. ‘There’s money on the table.’

  ‘It’s not enough.’

  ‘It’s a start. I can go back and see if I can get some more. I’m prepared to do that if you’re prepared to go back on your side and see if they’ll be realistic.’

  Custler shrugged.

  ‘Will you talk to them?’

  ‘I’ll talk to them,’ said Custler fatalistically. ‘Of course I’ll talk to them. Until I’m hoarse. I’ll do anything I can to save this bank and the jobs of the people who work there. I’m just telling you I don’t think that going back to my board with this is going to get us anywhere.’

  ‘Bill, that’s just not acceptable. This is coming from the president. He gave us a deadline of today. Now I’m going to have to go back and tell him we missed it.’

  Custler was silent.

  Rabin threw himself back in his chair. He shook his head, imagining the president’s reaction. The time had ticked away. They had started with twelve days – now there were only four. Friday today. The midterm elections were on Tuesday. That left Monday to announce a deal. He tried to think how the White House might present it. Bold action taken by the administration to prevent a collapse that could have sparked another financial crisis. On the day before the midterms? He shook his head again.

  Even without the election, the deal still needed to be done. The market had been holding fire too long and wasn’t going to wait much longer. It had only waited this long because of the rumors that a deal would be announced before the end of the week. If the Fidelian situation wasn’t clarified over the weekend, if there wasn’t a definitive statement before the markets opened again, there was going to be the mother of all sell-offs on Monday.

  ‘We need a deal,’ he said. ‘There’s no alternative, Bill. Your shareholders need to understand that.’

  ‘And I’ve told you I’ve told them that already and I’ll talk to them again but–’

  ‘No. Listen to what I’m telling you. We need a deal by the time the markets open Monday morning. This is it. There’s no more time. They have to say yes.’

  Custler looked at him pointedly. ‘Then maybe someone else should give them that message.’

  22

  ‘NO, I DON’T understand!’ said Knowles. ‘You told me you could do it overnight. Then you told me you were going to get a deal done today at the outside.’

  Jerry Rabin, speaking from New York, had just given a rundown of his conversation with Bill Custler. Susan Opitz and Ron Strickland were patched in. The president’s senior aides were with him in the Oval Office.

  ‘This isn’t seriously going to happen, is it?’ said Knowles. ‘You’re not telling me there’s any serious risk this bank is going down?’

  There was another silence on the line before Opitz responded. ‘They know we need a deal done by the end of the weekend, Mr President.’

  Tom Knowles closed his eyes. He had a bad, bad feeling about this. Rabin and Opitz had had all week to cut a deal. Now they were hoping to get it done over the weekend. Even if they did, announcing something like this the day before the election would be a horrendously risky thing to do.

  ‘Can we push it out past Tuesday?’ he asked.

  ‘The market’s demanding something. Custler’s under incredible pressure to announce. We risk a total bloodbath.’

  ‘Didn’t their share price rise a little?’ Knowles glanced for confirmation at Marty Perez, who nodded.

  ‘Sir, that’s because of the rumors,’ said Rabin. ‘People think there must be political pressure to get a deal ahead of the election so they’re buying shares in hopes that pressure forces the price higher.’

  Knowles shook his head in disbelief. He didn’t know much about the financial markets but the more he saw of them the sicker they made him. Rumors building on rumors, and everyone trying to make money on the back of them, like vultures hovering over a carcass.

  ‘No one’s trading with Fidelian. No one’s lending them money, no one’s doing business with them. Right now this is a zombie bank and it’s only the Fed that’s keeping it alive.’

  ‘What if we continue to negotiate through Tuesday?’ said Ed Abrahams.

  ‘We’ll have the mother of all sell-offs on Monday. If Custler doesn’t say anything, the markets will think he’s under political pressure to stay quiet because of the election. They’ll know the news is bad. They can put two and two together.’

  There was silence.

  ‘This is a mess,’ said the president. ‘This is just one hell of a mess.’

  No one said anything. That was an understatement.

  ‘Susan, how bad is this if it happens? Let’s forget about the election. If there was no election, would we be trying to do anything about this? How bad is it economically?’

  ‘Bad. This has pretty much come out of nowhere. A month ago, this wasn’t even on the horizon. So the first thing the market’s going to do is look at this and say, okay, who else? Who’s next? Even if there isn’t one, they’re going to be looking.’

  ‘We don’t think there is a next one, by the way,’ said Strickland.

  ‘But you can’t be sure,’ said Abrahams. ‘You didn’t see this one, right?’

  ‘That’s exactly the problem right there,’ said Opitz. ‘That’s what everyone’s going to be saying, including other banks. Fidelian goes down, there’s going to be a scramble for safety. First up, anything to do with Fidelian – any loan, any asset, anything – gets sold, for whatever anyone can get for it. That hits other banks who are holding Fidelian assets. That puts those other banks in danger. That makes other banks want to stop trading with them. When the effects start to ripple out then other institutions that are sound but don’t have … let’s say they don’t have a lot of slack to play with, suddenly they’re in trouble as well.’

  ‘This sounds like 2008.’

  ‘It’s not 2008,’ said Strickland. ‘With a little short-term support, other banks aren’t going to fall over. The system is fundamentally sound.’

  ‘I agree with that,’ said Opitz. ‘But the shock will be huge. There’s going to be overreaction. Mr President, everyone’s going to say exactly what you said, this is 2008, even though it isn’t. It’s going to take time for them to realize that. And in that time, things are going to look very ugly.’

  ‘Can’t we force this bank to do something?’ said the president. ‘What about … can we take them over?’

  ‘You mean nationalize it?’

  ‘I don’t know. Is that what I mean?’

  ‘We have the powers to wind them up,’ said Opitz, ‘but that doesn’t solve the problem of the impact on the market.’

  ‘Well, can we force them to sell?’

  ‘No, sir.’

  ‘Are we sure about that? Have we checked all this stuff?’

  ‘We’ve explored all the options.’

  ‘I don’t think
we ever conceived of a situation where someone would knock back a reasonable offer when they were staring at bankruptcy,’ said Ron Strickland.

  ‘Not for commercial reasons,’ murmured Ed Abrahams.

  Knowles looked at him.

  ‘Mr President,’ said Rabin, ‘they could be bluffing us. It may be this is a way of trying to push up the price. They may be taking us to the wire.’

  ‘But it’s possible they’re not.’

  ‘Yes, sir. My suggestion is, the only thing we can do here is exert maximum pressure. I’ll be meeting with the heads of other banks I think I can get to come to the party. Will you speak to them if necessary?’

  ‘Do I need to do that?’

  ‘I think that may be needed, sir.’

  ‘I’ll check with counsel to see if that’s okay,’ said Roberta Devlin.

  The president nodded.

  ‘The other thing,’ said Opitz, ‘is we need pressure on the other side. We need pressure on the PIC. They’ve either got to put up a good portion of the twenty-three billion or sell this company for a realistic price.’

  ‘We already tried putting pressure on them,’ said Abrahams.

  ‘Then we need to do it better.’

  ‘How do you suggest we do that?’

  ‘They’re an arm of the Chinese government.’

  ‘We spoke to their ambassador.’

  ‘Then we need to go higher.’

  All eyes were on the president. He knew exactly what Opitz meant.

  Knowles frowned for a moment. He turned to the Treasury secretary. ‘I’m not talking to anyone until I have something to say.’

  23

  AT NINE O’CLOCK on Saturday morning, Wall Street’s most powerful CEOs were gathered in a conference room at the New York Fed at 33 Liberty Street. Jerry Rabin had exercised the ultimate prerogative of his office – the ability to call the leaders of America’s financial community out of their weekend homes and off their golf courses to meet in crisis conclave.

  Rabin, Susan Opitz and Mike O’Brien, head of the SEC, walked into the room, accompanied by a number of their aides. The pleasantries were brief. Rabin had had his assistant organize the meeting without telling the CEOs the purpose, but they had all guessed what it was about. As instructed, they had come into the building via the back garage entrance to avoid journalists who might be waiting at the front. Each had brought a number of his top executives, but only the eight CEOs themselves sat in the room. The others cooled their heels outside.