The Moneychangers (52 page)

"I worked for the U. S. Treasury Department for twenty years, most of it as an IRS investigator, and I've kept my contacts green, not only there but in a lot of other places. Not many know it, Mr. Vandervoort, but a way investigators work is by trading confidential information, and in my business you never know when you'll need someone else or they'll need you. You help another man this week, sooner or later he'll come through for you. That way, too, you build up debts and credits, and the payoffs in tip-offs and intelligence go both ways. So what I'm selling when you hire me is not just my financial savvy, which I like to think is pretty fair, but a web of contacts. Some of them might surprise you."

"I've had all the surprises I need today," Alex said. He touched the report in front of him.

"Anyway," fax said, "that's how I got a lot of what's in there. The rest was drudgery, patience, and knowing which rocks to look under." "I see."

'There's one other thing I'd like to clear up, Mr. Vandervoort, and I guess you'd call it personal pride. I've watched you look me over both times we've met, and you haven't much cared for what you've seen. Well, that's the way I prefer people to see me because a man who's nondescript and down-at-the-heel isn't as likely to be noticed or taken seriously by those he's trying to investigate. It works another way, too, because people I talk to don't think I'm important and they aren't on guard. If I looked anything like you, they would be. So that's the reason, but I'll also tell you this: The day you invite me to your daughter's wedding I'll be as well turned out as any other guest."

"If I should ever h
ave a daughter," Alex said, "I’ll
bear that in mind."

When fax had gone, he studied the shocking report again. It was, he thought, fraught with the gravest implications for First Mercantile American Bank. The mighty edifice of Supranational Corporation SuNatCo was crumbling and about to topple.

Lewis D'Orsey, Alex recalled, had spoken of rumors about "big losses which haven't been reported… sharp accounting practices among subsidiaries

… Big George Quartermain shopping for a Lockheed-type subsidy." Vernon Jax had confirmed them all and discovered much, much more.

It was too late to do anything today, Alex decided. He had overnight to consider how the information should be used.

10

Jerome Patterton's normally ruddy face suffused an even de
eper red. He protested, "Dammit!
what you're asking is ridiculous."

"I'm not asking." Alex Vandervoort's voice was tight with anger which had simmered since las
t night. "I'm telling you do it
"

"Asking, telling what's the difference? You want me to take - an arbitrary action without substantial reason."

"I'll give you plenty of reasons later. Strong ones. Right now there isn't time."

-  They were in the FMA president's suite where Alex had been waiting when Patterton arrived this morning.

"The New York stock market has already been open fifty minutes," Alex warned. "We've lost that much time, we're losing more. Because you're the only one who can give an order to the trust department to sell every share of Supranational we're holding."

"I won't!
" Patterton's voice rose. "Besides, what the devil is this? Who do you think you are, storming in here, giving orders…"

Alex glanced over his shoulder. The office door was open. He walked to close it, then returned.

"I'll
tell you who I am, Jerome. I'm the guy who warned you, and warned
the board; against in-depth

in
volvement with SuNatCo. I fought against heavy trust department buying of the shares, but no one including you would listen. Now Supranational is caving in." Alex leaned across the desk and slammed a fist down hard. His face, eyes blazing, was close to Patterton's. "Don't you understand? Supranational can bring this bank down with it."

Patterton was shaken. He sat down heavily behind the desk. "But is SuNatCo in r
eal trouble? And are you sure?

"If I weren't, do you think I'd be here, behaving this way? Don't you understand I'm giving you a chance to salvage something out of what will be catastrophic anyway?" Alex pointed to his wrist watch. "It's now an hour since the market opening. Jerome, get
on a phone and give that order!
"

Muscles around the bank president's face twitched nervously. Never strong or decisive, he reacted to situations rather than created them. Strong influence often swayed him, as Alex's was doing now.

"For God's sake, Alex, for your sake, I hope you know what you're doing." Patterton reached for one of two telephones beside his desk, hesitated, then picked it up.

"Get me Mitchell in Trust… No, I'll wait… Mitch? This is Jerome. Listen carefully. I want you to give a sell order immediately on all the Supranational stock we hold

… Yes, sell. Every share." Patterton listened, then said impatiently, "Yes, I know what it'll do to the market, and I know the price is down already. I saw yesterday's quote. We'll take a loss. But still sell… Yes, I do know it's irregular." Hs eyes sought Alex's as if for reassurance. The hand holding the telephone trembled as he said, "There's no time to hold meetings. So do it! Don't waste.. ." Patterton grimaced, listening. "Yes, I accept responsibility."

When he had hung up the telephone, Patterton poured and drank a glass of water. He told Alex, "You heard what I said. The stock is already down. Our seeing win depress it more. We'll be taking a big beating."

"You're wrong," Alex corrected him. "Our trust clients people who trusted us win take the beating. And it
would be bigger still if we'd waited. Even now we're not out of the woods. A week from now the SEC may disallow those sales." "Disallow? Why?"

"They may rule we had insider knowledge which we should have reported, and which would have halted trading in the stock." "What kind of knowledge?" 'What Supranational is about to be bankrupt."

"Jesus!" Patterton got up from his desk and took a turn away. He muttered to himself, "SuNatCo! Jesus Christ, SuNatCot" Swinging back on Alex, he dema
nded, "What about our loan? Fif
ty million."

"I checked. Almost the full extent of the credit has been drawn." "The compensating balance?" "Is down to less than a million."

There was a silence in which Patterton sighed deeply. He was suddenly calm. "You said you had strong reasons. You obviously know something. You'd better tell me what."

"It might be simpler if you read this." Alex laid the Jax report on the president's desk.

"I'll read it later," Patterton said. "Right now, you tell me what it is and what's in it."

Alex explained the rumors about Supranational which Lewis D'Orsey had passed on, and Alex's decision to employ an investigator Vernon Jax.

"What Jax has reported, in total hangs together," Alex declared. "Last night and this morning I've been phoning around, confirming some of his separate statements. All of them check out. The fact is, a good deal of what's been learned could have been discovered by anyone through patient digging except that no one did it or, until now, put the pieces together. On top of that, Jax has obtained confidential information, incl
uding documents, I presume by”

Patterton interrupted peevishly, "Okay, okay. Never mind all that. Tell me what the meat is." "I'll give you it in five words: Supranational is out of money. For the past three years the corporation has had enormous losses and survived on prestige and credit. There's been tremendous borrowing to pay off debts; borrowing again to repay those debts; then borrowing still more, and so on. What they've lacked is real cash money."

Patterton protested, "But SuNatCo has reported excellent earnings, year after year, and never missed a dividend."

"It now appears the past few dividends have been paid from borrowings. The
rest is fancy accounting. We all
know how it can be done. Plenty of the biggest, most reputable companies use the same methods."

The bank president we
ighed the statement, then said gloomily
. "There used to be a time when an accountant's endorsement on a financial statement spelled integrity. Not any more."

"In here" Alex touched the report on the desk between them "are examples of what we're talking
about. Among the worst is Greena
pastures Land Development. That's a SuNatCo subsidiary." "I know, I know."

"Then you may also know that Greenapastures has big land holdings in Texas, Arizona, Canada. Most of the land tracts are remote, maybe a generation from development. What Greenapastures has been doing is making sales to speculators, accepting small down payments with hedged agreements, and pushing payment of the fun price away into the future. On two deals, final payments totaling eighty million dollars are due forty years from now wed into the twenty-first century. Those payments may never be made. Yet on Greenapastures and Supranational balance sheets, that eighty million is shown as current earnings. Those are just two deals. There are more, only smaller, utilizing the same kind of Chinese accounting. Also, what's happened in one SuNatCo subsidiary has been repeated in others."

Alex paused, then added, "What all of it has done, of course, is make everything look great on paper and push up unrealistically the market price of Supranational shares."

"Somebody's made a fortune," Patterton said sourly. "Unfortunately it wasn't us. Do we have-any idea of the extent of SuNatCo borrowing?"

"Yes. It seems that fax managed to get a look at some tax records which show interest deductions. His estimate of short-term indebtedness, including subs
idiaries, is a billion dollars.
Of that, five hundred million appears to be bank loans. The rest is mainly ninety-day commercial paper, which they've rolled over."

Commercial paper, as both men knew, were IOUs bearing interest but backed only by a borrower's reputation. "Rolling over" was issuing still more IOUs to repay the earlier ones, plus interest.

"But they're dose to the limit of
borrowing," Alex said. "Or so J
ax believes. One of the things I confirmed myself is that buyers of commercial paper are beginning to be wary."

Patterton
mused, "It's the way Penn Central fell apart. Everybody believed the railroad was blue chip the safest stock to buy and hold, along with IBM and General Motors. Suddenly, one day, Penn Central was in receivership, wiped out, done."

"Add a few more big names since then," Alex reminded him.

The same thought was in both their minds: After Supranational, would First Mercantile American Bank be added to the list?

Patterton's ruddy face had gone pale. He appealed to Alex, "Where do we stand?" No pretense of leadership now. The bank president was leaning heavily on the younger man.

"A lot depends on how much longer Supranational stays afloat. If they can hang on for several months, our sales of their stock today might be ignored, and the breach of the Federal Reserve Act with the loan may not be investigated closely. If the breakup happens quickly, we're in serious trouble with the SEC for not revealing what we know, with the Comptroller of Currency over abuse of trust, and, over the loan, with the Fed Reserve. Then, I need hardly remind you, we're facing an outright loss of
fifty million dollars, and you know what that will do to this year's earnings statement, so there'll be angry shareholders howling for someone's head. On top of that there could be lawsuits against directors."

"Jesus!
" Patterton repeated, "Jesus H. Christ!" He took out a handkerchief and mopped his face and egg-like dome.

Alex went on relentlessly, "There's something else well have to consider publicity. If Supranational goes under there will be investigations. But even before that the press will be on to the story and do probing of their own. Some of the financial reporters are pretty good at it. When the questioning starts, it's unlikely our bank will escape attention, and the extent of our losses will become known and publicized. That kind of news can make depositors uneasy. It could cause heavy withdrawals." "You mean a run on the bank! That's unthinkable."

"No, it isn't. It's happened elsewhere remember Franklin in New York. If you're a depositor, the only thing you care about is whether your money's safe. If you think it might not be, you take it out fast."

Patterton drank more water, then slumped into his chair. If possible, he looked even paler than before.

"What I suggest," Alex said, "is that you call the money policy committee together immediately and we concentrate, during the next few days, on attaining maximum liquidity. That way, we'll be prepared if there's a sudden drain
on cash." Patterton nodded. "All
right."

"Apart from that there's not muc
h else to do but pray." For the
first time since coming in, Alex smiled. "Maybe we should get Roscoe working on that."

"Roscoe!" Patterton said, as if suddenly reminded. "He studied the Supranational figures, recommended the loan, assured us everything was great."

"Roscoe wasn't alone," Alex pointed out. "You and the board supported him. And plenty of others studied the figures and drew the same conclusion." "You didn't."