End Game (23 page)

‘You’re asking us to be the agents of a federal government intervention. Well, Madam Secretary, go intervene yourselves.’

‘You know we can’t do that.’

‘And there’s a good reason for that. It’s called the market. The market makes the call.’

‘Let’s hold up,’ said Rabin. ‘You guys all know what happens if this bank goes down.’

‘It goes down,’ said Aspin.

‘Bob,’ said Rabin, ‘I believe that’s what people said the weekend before Lehman went down.’

‘Fidelian ain’t no Lehman.’

‘It’s big enough. We can’t allow that to happen. Neither can you. I assume each of you has already figured out the likely hit you’ll take if Fidelian falls over.’

‘As I said,’ said Aspin, ‘Fidelian ain’t no Lehman. Not for Deutsche BoA, anyway. I think what we have here is political calculation masquerading as economics.’

‘No we do not!’ retorted Opitz. ‘Have you calculated the cost of the systemic economic effects we’re going to see if this happens? We have.’

‘Blackmail,’ said Aspin.

‘Bob, I don’t think we should use that word,’ said Sonny Mello. ‘I don’t think that’s appropriate.’

Aspin gave a disgruntled shrug.

Jerry Rabin glanced at Opitz. She nodded slightly. He looked back at the bankers. ‘This is a very serious situation. The president would like to speak to you.’

One of Rabin’s aides reached into his briefcase and produced a secure phone.

It took a couple of minutes to get through the White House switchboard to the president. The bankers waited silently. Aspin sat, arms folded across his chest, face set, as the president encouraged them – made it clear that he expected them – to find a way to do a deal.

‘Well,’ said Aspin when the president had finished. ‘Now it’s blackmail with icing on top.’ He stood up. ‘Mr Chairman, Madam Secretary, Deutsche BoA does not believe there’s a deal to be done here. You said at the beginning of this meeting that everything that takes place in this room will remain confidential. I assume you will honor that undertaking.’

Rabin nodded.

‘Goodbye, then.’

Aspin walked out. Perlman muttered something to himself.

There was silence.

‘Okay,’ said Sonny Mello. ‘Here’s what this deal needs to look like. There’s a bunch of loans in this business that no one’s going to want. We separate them out, the rest is maybe doable at a couple of bucks a share plus the money the Fed’s making available. That means we’re going to have to put something in to create an entity that can take those loans away. So in the words of one of my illustrious predecessors, let’s make it simple. How much would each of us put in to save Fidelian?’ He glanced for a moment at a piece of paper on which he had made some calculations. ‘From what I’ve heard, and taking account of the guarantees the government’s providing, I’d say ballpark we’re looking at three-quarters of a billion each. Who’d agree to put that in?’

No one responded. Rabin looked around the room. The bankers avoided his gaze.

Suddenly he was afraid the rescue operation was going to stop right there.

‘We can do the deal any number of ways,’ he said quickly. ‘Get your teams in. Do the due diligence. We’ve got the whole weekend.’

TOM KNOWLES SPENT
the weekend at the White House. The campaigning engagements that had been organized for him had been canceled. Final polls were coming in from all over the country ahead of the elections on Tuesday. The president spent hours analyzing them with his aides. The chance of getting sixty seats in the Senate was gone. Knowles was just hoping now that the Republicans could hold the numbers they had. The discussions taking place at the New York Fed would have a big bearing on that. Failure to get a deal was too awful to contemplate.

The implications of getting a deal weren’t unalloyed joy either. Ed Abrahams had been extremely wary of offering a federal guarantee, but Knowles had been convinced by Rabin and Opitz that there was no way they’d get a deal without it. But it wasn’t going to look good, he knew that, and he was going to come under plenty of fire when it came out. Opitz had told him they might be able to keep the details in the public domain vague for a day or two, long enough for the true magnitude of the federal commitment to remain unclear until after the election. But even that wasn’t certain. One thing that definitely was certain was that there was no more government money on offer to sweeten the deal. Eighteen billion was the max. Economic implications aside, if the sum got too big, saving the bank would be as bad for him politically as letting it fail.

Opitz updated the president through Saturday. Negotiations continued and the Treasury secretary didn’t know which way things would go. The bankers had their teams working overnight but when Opitz rang on Sunday morning there was still no deal. At lunchtime Opitz called to say that two more of the CEOs had taken their teams and walked out, and it looked as if Ed Loeffler was about to go as well, which would probably be the end of the ballgame. The president got back on the line and managed to keep Loeffler in the room. At seven in the evening Opitz rang again to say there was still no deal and she couldn’t say if there would be. Knowles spoke to her at eleven and she said she still couldn’t say.

He went to bed not knowing what to expect when he woke up. A call with the Chinese president had been scheduled for early the next morning before the markets opened, in the hope that there would be an offer for Fidelian that Knowles could put to him.

Normally Tom Knowles was pretty good at putting problems aside for the night. But that night he got very little sleep.

When he woke at six o’clock a message from the Treasury secretary was waiting.

24

THE DEAL HAD
been finalized around 4am on Sunday. Three banks were in, breaking Fidelian into pieces and spinning off its most toxic loans into a jointly owned entity created for the purpose. The price, although higher than the previous offer that Custler had rejected, still wasn’t big. It was nowhere near the number Custler had said his board would require.

At least that gave Knowles something to say. His call with the Chinese president had been scheduled for 7am in Washington, 8pm in Beijing. Gary Rose, Ed Abrahams and Roberta Devlin were in the Oval Office to listen in, together with a Mandarin speaker from the National Security Council staff.

Knowles had met Zhang on four occasions and couldn’t say he liked him. His conversations with his Chinese counterpart had confirmed what he had been told to expect of him in briefings. Zhang was unfailingly formal, with a tense and controlled air, and didn’t seem to warm up even in private conversation. His demeanor befitted his reputation for ruthlessness and austerity, and he was utterly obdurate in his focus on economic growth. Nothing in any of his conversations ever suggested a softening over democracy, human rights or environmental sustainability. Under Zhang, China had proven as hungry for natural resources and as deaf to demands for meaningful compromise over climate change as under any of his predecessors.

But Zhang’s obsession with economic growth was at least an advantage in this circumstance. There was no benefit for the Chinese president in seeing the disruption in the American financial system that the failure of Fidelian could create. China had avoided the worst of ’08 and ’09 because of the extraordinary domestic stimulus it had injected, but the effect came back to haunt it six years later with inflation, a debt-riddled banking system and spiraling unemployment that had led the regime to the brink of collapse. There was no reason to suppose that Zhang would allow anything that would open the door, even fractionally, for such conditions to recur.

Yet by the same token, Knowles didn’t understand why Zhang hadn’t done something to save Fidelian already. For all the lip service Chinese officials paid to the transparency of their financial system, it was still an economy where, if the government told a bank to lend, it would lend. If it told its own investment fund to put money into an entity that it owned, or accept a sale, it would do so. The Chinese president couldn’t possibly be unaware of the crisis that was unfolding on the American markets. Markets around the world had fallen in synch. Tom Knowles had had calls from a whole clutch of national leaders asking anxiously whether he thought the US was on the brink of significant economic problems, and Susan Opitz had had calls from an even larger number of finance ministers. The whole world was watching.

Maybe Zhang didn’t know. Or maybe he didn’t know the role his own investment fund was playing. Or maybe he was being told that the offer would keep getting better the longer he waited. The purpose of the call was to make sure he knew the truth about these things. To make absolutely sure the Chinese president knew that the PIC held the cards in this particular deal, that the offer the PIC was about to receive was the last best offer they would get, and to confront him with the prospect that if his investment fund wasn’t prepared either to support Fidelian or to sell it, it would set off an economic storm that would quickly find its way across the Pacific from one shore to the other.

THEY EXCHANGED INTRODUCTORY
pleasantries through their interpreters. Zhang’s tone was as formal as ever.

Trying to strike a positive note from the start, Knowles initiated a brief discussion of the nuclear decontamination mission in the former North Korea, in which the US and China were participating side by side as members of the UN oversight panel. Bob Livingstone, informed of the possibility of an upcoming call to Zhang, had given Knowles a list of other issues to raise with the Chinese president and a series of talking points on each one, but Gary Rose, after vetting them, had ruled them out. Almost all involved some degree of conflict between the two countries and discussing them would have set the wrong tone for the conversation, or given Zhang the impression that Knowles was proposing a trade on one of them in exchange for help with Fidelian.

‘Mr President,’ said Knowles after a couple of minutes, ‘I would like to turn to a matter in which I think there may be an opportunity for further cooperation between us.’

‘Perhaps we should discuss the situation in South Africa,’ came back the reply. ‘We must find a more effective way of encouraging a restoration of the constitutional position in the country without being seen to impose our wills as foreign powers.’

‘That’s true, President Zhang, we must not impose our will. On the other hand the people of South Africa have a constitution and they deserve to be able to live under its terms.’

‘There are different ways to do this,’ said Zhang.

Knowles glanced at Rose. The national security advisor shook his head.

‘There is another issue which I would like to discuss with you,’ said Knowles. ‘An urgent matter. This relates to a bank in the United States that is currently in a position of some trouble.’

‘Yes. I have heard of it. That is Fidelian Bank, isn’t it?’

‘That’s right. When I say it’s an American bank, it has global operations.’

‘Yes,’ said Zhang. ‘I am aware of this. I believe it has a banking license in China.’

Knowles raised an eyebrow. Not only had Zhang been briefed, he was happy to let Knowles know it.

‘There is a very large ownership in this bank by one of your state investment funds,’ said Knowles.

‘Our investment funds have many holdings.’

‘I would like to be completely frank with you, President Zhang. This is a very confidential and delicate matter. Fidelian Bank is on the verge of bankruptcy. My understanding is that its shareholders, led by your investment fund, are unwilling to put more money into the bank.’

‘This would be a commercial decision,’ said Zhang. ‘I have no knowledge of the commercial decisions made by any of our state funds.’

‘I understand that. Our understanding is that this fund is not willing to put more capital into the bank – which is its legitimate commercial decision, as you say – but is also not prepared to receive a reasonable price from other parties who are prepared to take on the business with its liabilities and run it in an orderly fashion.’

‘I have no knowledge of the commercial decisions you are describing.’

‘I’m not suggesting–’

‘If they have not accepted the price–’ Zhang’s interpreter paused. The two interpreters had talked over each other.

‘Please, go ahead, Mr President,’ said Knowles.

The Chinese leader invited Knowles to speak.

‘No, please go ahead,’ said Knowles again.

There was silence. Knowles waited impatiently. He disliked these four-way phone conversations with two principals and two interpreters. Half the time you either had two people speaking together or no one saying anything.

‘I was saying that if they have not accepted the price,’ began Zhang again, ‘then I must assume there is a good reason for this which I would not question. The managers for our state funds are very competent people. The funds are mandated to make the best investments on behalf of the Chinese people. That is their obligation. President Knowles, let me assure you there is nothing else that we ask them to do.’

‘I understand that,’ said Knowles. ‘It is possible, however, that managing this fund from such a distance means they do not see all of the issues and implications of their decisions. The decision they seem to be making over Fidelian Bank has a number of very significant implications. These go far beyond the normal implications of such a decision.’

‘I repeat, President Knowles, this would be a commercial decision.’

Knowles paused for a moment. He knew this was the line the Chinese president would take, but he wondered if he was getting through at all.

‘President Zhang,’ he said, ‘I want you to know there is an offer to buy Fidelian Bank. Mr Rabin, who is the head of our Federal Reserve Bank in New York, has helped put together a deal from three other banks to buy the operation. This deal was put together last night and I believe it has not yet been put to the management of Fidelian Bank, but will be within the next hour. Fidelian Bank is aware that an offer will be coming and the CEO has arranged to speak with members of the board. I would strongly urge Fidelian Bank’s board to accept it.’