Trigger Point (18 page)
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.
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.’
‘I am sure they will consider it.’
‘President Zhang, it is not as much as they have asked for. In fact, it’s quite a lot lower. In our view what they have asked for, to be perfectly honest, is unrealistic. What this deal offers is the very, very best that they will get. I personally intervened to make sure that this offer was at the very top of the range. Above it, in fact. When anyone looks at this deal, they should be aware it isn’t a bargaining position. It’s the full and final offer and there’s nothing more available.’
‘President Knowles, thank you for this information.’
There was silence. Knowles looked at Rose. Rose shrugged slightly.
‘President Zhang, can I ask you to pass that message on to the responsible people within the investment fund? I believe they have two seats on the board. This is an urgent need. The deal will be communicated within the hour. Fidelian Bank is required to make an announcement about its position. This deal must be done before the announcement is made. It needs to be done this morning, before the market opens here in New York.’
‘I understand from what you say that the offer will be communicated through the normal channels of the bank. If this is a final offer I would encourage your officials to make sure that Fidelian Bank understands this,’ replied Zhang.
‘They will do that, but I am concerned that the officials within your investment funds will not see this offer for what it is. I am very concerned that they understand how important it is to treat this offer seriously. This is a final offer. Mr President, would it be possible for you to ensure that they understand this?’
Knowles waited, listening closely. Everyone in the room gazed at the speakerphone.
‘President Knowles, I do not interfere with the commercial decisions of the state funds.’
Knowles closed his eyes.
‘However, the state funds must consider the realities of the world.’
Knowles glanced at Rose and Abrahams. They were both frowning, trying to decipher what Zhang meant.
‘Mr President,’ said Knowles, ‘that is very helpful. There are important realities to consider. Let me say this as clearly as I can. The failure of this bank will lead to considerable uncertainty and disruption within not only our markets, but in global markets. I think this would have a severe effect not only on America but on China as well. We are all interconnected.’
‘We are interconnected. That’s true.’
‘I am concerned that this might be the start of a serious loss of confidence and we only have to look back a few years to see where that got us.’
There was silence. Knowles suddenly wondered whether Zhang thought he was referring to the Chinese troubles of 2014. He had meant 2008.
‘As I said,’ said Zhang, ‘we must all consider the realities.’
What exactly did Zhang mean by that? What was he referring to? Did he want to come back to the discussion about South Africa? Knowles glanced at Rose. The national security advisor shook his head.
Knowles decided to pretend he didn’t apprehend anything but the most obvious inference. ‘Again, I can only stress that both our countries will suffer badly if the board of Fidelian Bank doesn’t accept this offer. Much of the progress we have made in the last few years will be reversed. Can I take it, Mr President, that you will make sure your officials understand the seriousness of the offer?’
‘They will understand.’
‘And can I stress the urgency of this?’
‘The urgency is understood.’
‘And the fact that this is a final offer. There will not be another opportunity. This is the last one.’
‘I understand.’
‘Thank you, Mr President.’
‘President Knowles, is there anything else you wish to talk about?’
‘Not today, President Zhang. Is there anything else you wish to talk about?’
‘This phone call was at your request.’
Knowles was silent for a moment, wondering whether he had done enough. This was his last chance. But he had said what he had meant to say. Saying it again wouldn’t help.
‘Thank you, President Zhang. Thank you for your time. I hope that you will be able to help in this matter. It’s important to talk when we can help each other.’
‘I agree. I look forward to talking with you again soon.’
‘Thank you, President Zhang. Good night.’
‘And good morning to you, President Knowles.’
Knowles put down the phone.
He looked around. Ed Abrahams took a deep breath and blew it out slowly.
‘Well, that’s done,’ said Knowles. ‘I hope he understood that this was the absolute, final offer.’
‘You told him,’ said Abrahams. ‘What else can you do?’
‘What happens now?’
‘I’ll call Susan and let her know you had the conversation,’ said Roberta Devlin. ‘She’ll call Custler to release the offer.’
‘And then?’
‘The Stock Exchange knows there’s an announcement coming. We’ve vetted the statements the three banks are going to release. Josh is working on a last draft of your statement.’
‘When do I make it?’
‘As soon as we know Fidelian accepts.’
