‘Don’t you think we should find out?’
‘Mr President?’ It was the president’s counsel. ‘I think it would be extremely unwise for any official of the administration to approach Mr Custler at this point, now that he’s been called by Congress. From the outside it could easily be construed as an attempt to interfere with his testimony. If the secretary or anyone else chooses to go that route they’d need to have counsel at that meeting and be prepared to provide a verbatim transcript of the conversation.’
The president smiled incredulously.
‘I’m serious, sir.’
‘That sounds pretty strong.’
The lawyer nodded.
The president looked at Opitz. ‘You’ve really got no idea what he’s going to say?’
The Treasury secretary shook her head.
38
‘MR CUSTLER, CAN you tell me how you would describe your objectives as Chief Executive Officer of Fidelian Bank?’
Bill Custler returned the gaze of Henry Westheim, a small, snub-nosed Philadelphia Democrat who sat second left from center at the bar of the Senate Banking Committee.
‘Senator, I believe it was in keeping with the objectives of just about any CEO of a major investment bank. I was never asked to do anything different than I was asked to do in my previous jobs.’
‘How would you describe those objectives?’
Custler thought for a moment. ‘To manage the affairs of the bank in a manner most conducive to creating value for its shareholders, to deliver a great service for its customers, to provide a conducive and secure environment for its employees. To be a good member of the corporate and financial community. And also, of course, complying with all the relevant regulation.’
‘And do you think that is what you achieved?’
‘Within the constraints of the cards that were dealt to me, I believe that I did. Yes, sir.’
‘What were these “cards”, as you call them?’ Westheim said it with a sneer.
‘It’s no secret now that there were huge issues at the bank and I’m not trying to unduly exonerate myself, Senator, but those issues largely predate my time at Fidelian and I guess they’re the cards I’m talking about. So within those constraints, sir, I believe that I did manage to achieve my objectives as I understood them to be.’
‘ To be a good member of the … how did you put it? The corporate and financial community?’
‘Yes, sir.’
‘ To provide a conducive and secure environment for your employees? The large majority of whom, I would imagine now, are no longer employees. They might be interested to hear that you believe you managed to do that for them. Mr Custler, your attitude seems awfully complacent for someone who has just presided over the … well, I think the New York Times can probably say it more eloquently than me.’ Westheim made a show of holding up a tablet computer showing a recent article from the newspaper. ‘I quote: … over the most egregious example of banking ineptitude that we have seen since Dick Fuld led Lehman Brothers to oblivion ten years ago.’
‘Congressman, I don’t quite see it that way.’
‘No, sir, but the American people does.’
Bill Custler didn’t respond to that. He knew that a lot of what he would face in this congressional committee room would amount to grandstanding for the television cameras that were positioned around the chamber. There was going to be as much lecturing as questioning, as much grasping at soundbites as probing into the facts. His lawyer, who was sitting beside him, had advised Custler to respond sparsely to those things, if at all. It would be no-win for him if he tried to mollify the worked-up outrage. It wasn’t there to be mollified. It was there to be seen.
Senator Givens, the chair of the committee, turned to another senator, Republican Nancy della Rovere from Arizona.
Della Rovere spent at least half of her allotted fifteen minutes with a set of opening remarks attacking the rules on banking regulation that had been brought in under the Democratic – she emphasized this around a dozen times – Obama administration. Finally she got to her questions. ‘Mr Custler,’ she said, ‘I would like to understand better the evolution of this event. You referred to issues at your bank and clearly there were issues. That may be somewhat of an understatement, if you’ll allow me to say so. Can I ask you when you first became aware of the problems that led to the bankruptcy of Fidelian Bank?’
‘Senator, I’ll need to be a little precise in the way I answer this, so I’ll ask you to bear with me. The problems, that is the … losses, in our developing markets businesses, which were the core of the problems that contaminated everything else, as I’ve already explained … they’d been clear for some period of time. The decisions which were responsible for those losses go back a lot further, in most instance many years.’
‘Mr Custler, I asked you when you became aware of them.’
‘Yes, ma’am, that’s what I’m getting to. I had been aware of them for some months, but I believed that we would be able to manage the impact of these losses in the normal way. What I mean by that,’ he added quickly, seeing the senator opening her mouth to ask a question, ‘is by going to the market for a capital raising in order to replenish our balance sheet once we wrote those losses down. Senator, I’ve raised capital on the markets on a number of occasions, with other institutions and in fact with Fidelian Bank as well. This was a rather large sum that we needed, that’s true, but in principle I had no reason to imagine the exercise would be different to any of the others.’
‘So you thought you were going to be able to raise twenty-three billion dollars?’
‘Yes, ma’am. So did Morgan Stanley, incidentally, which was going to be the lead underwriter on the bond issue. It was a large sum, as I’ve just said, but our judgment was that we could do it.’
‘But it turned out that you couldn’t?’
‘No, ma’am.’
‘When did you become aware of that?’
‘It was only in the weeks leading up to our bankruptcy. Largely it was a function of the stock price. Our stock price, as you know, fell considerably, and as that happened it became clear that market sentiment towards the bank had turned sharply negative and we would not be able to raise the amount of capital we would require. At that point Morgan Stanley advised us they would not be prepared to underwrite the issue of our bonds.’
‘Do you think that was a fair assessment?’
‘Yes, ma’am. I’m not blaming them. I likely would have made the same assessment had I been in their place.’
‘Why did the stock price fall, Mr Custler?’
‘That I couldn’t say, Senator.’
‘It fell before any of the losses you mentioned became public knowledge.’
‘Yes. That’s correct.’
‘Are you aware that anyone was using inside information about the losses you had accrued?’
‘No, ma’am.’
‘So, it’s a mystery?’
‘Yes, ma’am.’
‘A mystery about why your stock price falls just when it needs to stay up so you can recapitalize the business.’
Custler didn’t reply. Whatever innuendo the senator thought she was making, he let it stand.
‘I’d like to come back to these losses you referred to. When did you become aware of them?’
‘Of the developing market losses? That’s what you’re referring to?’
‘Yes, Mr Custler,’ said the senator brusquely. ‘That’s what I’m referring to. When did you become aware of them?’
‘That would have been over a period of time, ma’am, as the picture became clearer.’
‘Were you aware of it when you became CEO of Fidelian?’
‘No, ma’am. I was recruited from a competitor bank and would have had no knowledge of any internal matters at Fidelian.’
‘Then when did you first become aware?’
‘That would be after I joined.’
‘When?’
Custler hesitated. He turned to his couns
el, who covered the microphone in front of Custler and whispered in his ear. Bill Custler knew that a wave of law suits would likely arise out of the Fidelian failure – the first of which had already been filed – and that he himself would not be immune to prosecution.
Custler turned back to the congresswoman. ‘Various problems became clear to me as time went on.’
‘And yet you made no announcements about this to the public?’
Custler turned to his counsel again. This time there was a brief whispered conversation.
‘Ma’am, I believe that all announcements were made in accordance with regulatory requirements.’
‘Yet nothing was said until the day your bank went bankrupt?’
The lawyer whispered in his ear again.
‘Ma’am, I can only repeat what I said. To the best of my knowledge – and I was very clear about this throughout my time there with our chief financial officer and our chief compliance officer – we complied one hundred per cent with the requirements of the relevant accounting rules and regulatory authorities. I think the paper trail will show clearly that this was the case and it was certainly my intention. I think that’s all I can say on this.’
‘I hope you’re right about the paper trail, Mr Custler. I believe that’s going to be examined in some detail.’
Custler was silent.
Senator Givens turned to Donald Goss, a big bear of a man from South Carolina.
‘Mr Custler,’ he began right away, ‘let me explain why I’m confused. I don’t understand why your bank went bankrupt. See, where I come from, if business ain’t too good, well, you look around for someone who’ll take it off your hands and you sell it to ’em. You don’t just go belly up, not if you can help it. You don’t just throw your employees out on the street, you try to do a little better for them. How many people did your bank employ? Can you remind us, Mr Custler?’
‘Eighteen thousand, Senator. Slightly more.’
‘And how many of them still have a job?’
‘I don’t have that exact number,’ said Custler quietly.
‘Can you estimate?’
‘Not very many, sir.’
‘I see. Not very many. Now, I understand there was someone who wanted to buy your bank. And I understand that you did not accept that offer. Now you told Senator Westheim that your objective as CEO – and I have to say, I agree with the senator that if you think you carried out those objectives, sir, you are sadly mistaken – now you told him that one of those objectives was to get the best value for your stockholders. So perhaps you would like to explain to this committee how the course of action you followed got the best value for them.’
‘Sir, it is true that there was an offer for the bank.’
‘Well, we all know there was an offer. What we don’t know is why you said no to that offer.’
‘Senator, it was not an acceptable offer.’
‘Says who? Says you?’
‘No, sir. That was not a decision for me. That was a decision that came from consultation with my board.’
‘And who is your board, Mr Custler? Is that the People’s Investment Corporation of China?’
‘No, sir.’
‘Is that Mr Hu of the People’s Investment Corporation of China?’
‘No, sir. The People’s Investment Corporation does have two seats on the board of Fidelian Bank but that is far from constituting the entire board.’
‘So I’m going to ask you, did the People’s Investment Corporation of China tell you that you should not take this offer?’
‘Senator, as I said, the People’s Investment Corporation is not the only stockholder in Fidelian Bank.’
‘I know that, Mr Custler. Let me ask you a question. How many times, in your experience as the Chief Executive Officer of Fidelian Bank, did the board agree to do something that the People’s Investment Corporation of China did not want you to do?’
Custler looked at his lawyer, who whispered in his ear.
‘Senator, I …’ Custler paused and looked at his lawyer again.
‘Mr Custler, don’t worry about that. Let us assume it is a very rare occurrence. I would assume it would be a very rare occurrence for a board to act against the wishes of such a large stockholder. Would you agree, without naming any names, that it would be a rare occurrence?’
‘Yes, Senator. I think that’s fair.’
‘Thank you.’ Goss smiled. ‘Maybe it might happen once.’
Custler waited.
‘As a matter of interest, how much Fidelian stock does the People’s Investment Corporation of China hold?’
‘I believe that would be fractionally over twenty-five per cent of the stock.’
‘Mr Custler, how much does it really hold?’
‘Senator, I don’t believe I understand your question.’
‘Is it possible that the People’s Investment Corporation of China holds more that twenty-five per cent of Fidelian stock through its subsidiaries?’
‘Technically I suppose that would be possible.’ Custler paused as his lawyer covered the microphone and whispered in his ear. ‘That would be speculation, sir.’
‘Sure, I know. I know. Let’s speculate a little further. If they did hold more stock through these subsidiaries, and if they did not declare that, given the level of stockholding that would amount to, would that be illegal?’
‘I’m not a lawyer, sir.’
‘I am. It would be illegal. Now, Mr Custler, do you know how much stock of Fidelian Bank in total the People’s Investment Corporation of China holds through its subsidiaries?’
‘Sir, as you said this is speculation.’
‘I’ve heard it may be as high as forty per cent.’
Custler shrugged.
‘So you don’t know?’
Custler hesitated for a moment. ‘No.’
Goss stared at him.
Custler stared back.
‘Okay. That would be a hell of a loss if they held forty per cent of that bank.’ Goss shook his head theatrically. ‘They wouldn’t be too happy with you, Mr Custler. I wouldn’t be too happy if I owned a company and my CEO ran it into the ground, and someone came along with an offer and he didn’t even take it. I’d wonder if that CEO didn’t have a screw loose. Couple of screws. A whole boxful of screws. First he destroys my company and then he doesn’t manage to get a dime for what’s left. I wouldn’t think much of that CEO, would you, Mr Custler?’
‘I … don’t know what I’d think.’
‘I do. I’d think that was one hell of an excuse for a CEO.’
‘That’s your opinion, sir.’
‘That’s my opinion? What kind of a CEO is that, Mr Custler? Can you tell me? What kind of a CEO sees eighteen thousand people lose their jobs and can’t so much as lift a finger to try to save them?’
Custler took a deep breath, trying not to let the senator’s insults get to him, which was exactly what the senator wanted. ‘Sir, whether or not to accept any offer was not my decision.’
‘Of course not. Did you speak to anyone else on the board about this offer? Anyone outside of the board members of the People’s Investment Corporation of China?’
‘All the board members were consulted, sir.’
‘And did any of them say they were in favor of accepting this offer?’
Custler’s lawyer put his hand over the microphone and whispered in his ear.
Custler looked back at the senator. ‘Senator, I’m required to decline to answer that.’
‘You’re required to decline?’
‘Yes, sir.’
‘Required?’
‘Yes, sir.’
Goss smiled as if in complete disbelief. ‘Mr Custler, let me remind you that you are seated before a committee of the United States Senate. Now, I am giving you the opportunity to tell the American people how it came to pass that a viable, commercial offer for Fidelian Bank was rejected by yourself. I don’t know what requirement could be more important than the American people’s requ
irement to know how that happened. Now, sir, I’m going to repeat a question I asked you before. Did the People’s Investment Corporation of China instruct you to reject this offer? You have the opportunity to tell the American people what happened to your bank. Please answer this question.’
Custler listened to his lawyer whispering in his ear. He nodded grimly.
‘Senator, I’m required to decline to answer.’
‘Then I have to conclude that an agency of a foreign government led directly to the bankruptcy of this American institution. Now, Mr Custler, I am giving you the opportunity to tell me why I should not conclude that. If you will, Mr Custler, please tell me and tell this committee and tell the American people why we should not conclude that.’
Custler frowned. ‘That’s not how I would put it,’ he said quietly.
‘Then how would you put it?’
Custler’s lawyer began to speak in his ear, but Custler shook his head.
‘It was not an offer that my shareholders felt was acceptable. Senator, that is what happened. That is all I can say.’
‘That’s it? It was not an offer that my shareholders felt was acceptable.’ Goss repeated the words sarcastically. ‘That’s all you have to say on the matter? To your eighteen thousand ex-employees. To your customers. To your stockholders. I’m talking about the stockholders who were not big enough to tell you what to do, not Mr Hu of the People’s Investment Corporation of China, Mr Custler, but the honest stockholders who held the stocks of your bank, sir – your bank, sir – thinking they were going to help fund their retirement while all the time you knew you had these losses sitting on your books waiting to come out. Do you think they had a good Thanksgiving last week, Mr Custler? I don’t think they had very much to give thanks to you about.’
Custler gazed at him.
The senator gazed back with a look of disgust. ‘Well, I’m bound to tell you, I don’t know how you sleep at night, Mr Custler.’
Bill Custler continued to stare at the senator. The truth was, he hadn’t slept much at all recently.
End Game Page 27
