End Game (18 page)

And yet Grey was in the market in a way that none of her officials or the officials at the Fed or SEC was. He would be hearing things that would never come anywhere near their ears.

‘Susan, do you want to tell me what you mean?’

‘Ed, is this just a bunch of Divvies trying to make a buck?’

Grey laughed. ‘You tell me.’

‘Do you think so?’

‘Susan, come on, it’s never just the Divvies. That’s a myth. The market doesn’t move like this unless everyone’s in.’

‘When you say everyone …?’

‘The banks, the funds. Mom and Pop.’

‘Okay. Ed, what I’m really asking …’ Opitz paused again. She glanced at her aide, who was frowning. ‘You know, let’s say you’re borrowing shares to short the market. Who’s lending?’

‘I don’t know. Who always lends?’

‘You haven’t noticed any …’ Opitz was stumped. She wanted to say it. She wanted to come right out and say it: are you aware of any politically motivated sellers? Are you aware of any action taken by sovereign investment funds, and in particular the PIC? But she couldn’t be that explicit. Do that, and if Grey wanted to, if it served his interests, he’d let fly rumors about who the Treasury thought was driving this and they would be ripping through the markets by the time they opened again tomorrow morning.

Grey listened to the silence. Opitz obviously had something in mind. He wondered what it was. He wondered how it would affect the way the market was moving.

‘So you haven’t noticed anything strange?’ said Opitz eventually.

‘Can you be more specific?’ said Grey.

‘No, it’s just a general question.’

Grey waited, hoping Opitz would say more.

There was silence.

Eventually Grey spoke. ‘No, Susan. I haven’t noticed anything strange. I called because I wanted to tell you what I thought about Rosario’s report. I thought you should know what it looked like from out here.’

‘I appreciate it.’

‘Susan, my sense is everyone’s nervous. Everyone’s wondering whether we’re seeing something big here. Now, you and I will have our own opinions about that. But anything anyone says in the administration – you, the Fed, anyone – it has to be incredibly careful.’

‘We’re always careful.’

‘I know that. But I mean really careful. I’m in this market. I’m telling you, Susan, it feels like it’s tinder out there. Someone else says the wrong thing – it’s going to go up.’

‘What would help stop that?’

Grey thought quickly. He was ready to close out his Fidelian position and take his profit. The way the market was moving was making him nervous. There was way too much uncertainty now. He wanted something to reduce that – and there was one thing that might do it.

‘Get Fidelian to preannounce their last quarter’s earning,’ he said. ‘That’s what everyone would like to see. They’re not due to announce until next month. Get them to bring it forward.’

18

SUSAN OPITZ HAD
met Bill Custler previously but she didn’t really know him. As an ex-executive from the utilities industry, she didn’t know the Wall Street coterie like Jerry Rabin, the president of the New York Fed, who had spent all of his adult life either working with them or regulating them.

She glanced at her watch. ‘Let’s get to the point, Mr Custler. What’s the situation?’

They were sitting in Rabin’s office. Rabin was a tall, dark-headed man with slouching shoulders who always looked to be weighed down by the thankless task of regulating Wall Street. Opposite them sat Custler, a slim man of medium height with thinning grey hair and blue eyes.

‘You’ve got our filings,’ said Custler. ‘We’re compliant. Our capital ratio’s adequate.’

‘Just.’

‘Just is enough, ma’am.’

‘Let’s be frank. There’s a rumor you’ll be coming to the market for cash.’

‘I can’t confirm rumors.’

‘I think you’d better start. Or else you’d better be able to deny them.’

There was silence. Custler glanced around uncomfortably.

‘We’ve been reviewing our loan book,’ he said eventually.

Opitz leaned forward. ‘Mr Custler, what’s in it?’

‘As I said, we’re reviewing it.’

Opitz glanced at Rabin, then looked back at the Fidelian CEO. ‘Mr Custler, I think you’re probably in a situation where you want to level with us here.’

‘Bill,’ said Rabin, ‘you really do need to tell us what’s going on.’

Custler hesitated.

‘Mr Custler, you need to understand some realities. We’re ten days away from an election and the president needs to get this dealt with. It’s time to talk. You’re sitting in the last chance saloon.’

‘I’m way past the last chance saloon,’ said Custler.

Opitz looked at him sharply. ‘What does that mean?’

Custler took a deep breath. ‘There are some loans in the portfolio … A big chunk of loans. We’ve got some developing markets business that was a little bullish when it was written. As you know, this bank grew very, very quickly out of the financial crisis. The management back then had a philosophy to go very aggressive to get market share, especially to build its Asian business. Part of the reason I was brought in was because that was getting a little too much. That’s left a legacy. Some of the decisions back then weren’t great.’

‘How not great?’

‘Not great.’

‘You’re going to write stuff down?’

Custler nodded.

‘A lot?’ said Rabin. ‘Don’t you think that’s something you should have shared with us? I talked to you, Bill. For God’s sake, I talked to you two weeks ago.’

Custler looked at him apologetically. ‘Jerry, I’m guided by our chief compliance officer.’

‘Sounds like someone needs to have a word with your chief compliance officer,’ said Opitz.

‘When’s this writedown going to happen?’ asked Rabin

‘We don’t file our quarterly results for another month. I’ve been trying to set up a bond issue.’

‘Who with?’

‘Morgan Stanley’s the lead. The plan was to announce the issue at the quarterly at the same time as we announce the writedown.’

‘And?’

‘That was before our stock price headed south. The shorts are killing us. They’re just killing us. Now Morgan’s telling us they can’t underwrite us at these prices.’

‘Bill, how much capital are you hoping to raise?’

‘Twenty-three billion.’

Opitz and Rabin stared at him.

‘Bill …’ said Rabin.

‘Twenty-three billion, Jerry. That’s what it is.’

Susan Opitz sat back and took a deep breath. Rabin shook his head as if testing whether he was really awake.

‘Bill,’ he said, ‘you want to get all of this through a bond issue?’

Custler nodded.

‘What about a rights issue?’

‘Our shareholders … I mean our major shareholders are not supportive of that idea.’

‘What about for a part of it?’

Custler shook his head.

‘Will they take up a portion of the bond issue?’

‘At this stage, I don’t believe they will.’

‘Mr Custler,’ said Opitz. ‘I’m afraid I have to agree with Morgans. I can’t see you having a hope in hell of going to the market for twenty-three billion dollars with your share price down forty per cent in the last month and when your own major shareholders aren’t prepared to provide some kind of support as a portion of that requirement.’

‘Madam Secretary, I’m not disputing it. I can tell you I’ve had a few sleepless nights.’

‘Bill,’ said Rabin, ‘how bad is this? How much of this twenty-three billion do you absolutely have to have? What’s the minimum?’

‘That is the minimum, Ron. That just keeps us adequate.’

‘Jesus Christ,’ murmured Rabin.

Bill Custler took a deep breath, as if relieved to have it off his chest.

‘And this is all from a bunch of developing market loans?’ said Rabin.

‘And some other stuff. There were a lot of bad decisions.’

‘Like what?’ demanded Opitz.

‘A whole series of things.’

‘Really? Like things that have miraculously reappeared on the balance sheet?’

‘Not like that. Not to my knowledge.’

‘Not to your knowledge?’

‘Look, Madam Secretary, I wasn’t CEO when those decisions were made. This goes back five, six years. I didn’t find out about the true state of this part of the business until long after I took over, and I’ve tried to deal with it in a way that doesn’t destabilize the bank. And I could do it. We can trade through this if we can raise the capital, and until the damn shorts came along we were going to be able to raise the capital and it was all going to be okay.’

‘Twenty-three billion?’

‘Morgans said they thought they could do it. But now we’ve got the shorts on us and these rumors are going around and I don’t know where they’re coming from–’

‘Does it matter?’ demanded Rabin. ‘Bill, none of the rumors are as bad as the truth.’

‘Well, we were going to raise it, Jerry. It was going to be okay. Frankly, I don’t know where the drop in the share price came from because as far as I know there weren’t any rumors on the street until it started happening.’

‘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.’