The Paper Factory (Michael Berg Book 1) (16 page)

Chapter 50

  “Mr. Delaney, Mr. Lindstrom for you.”

  “
Put him on.” It was 3.30 p.m. and Rick Delaney had spent most of the day locked in the boardroom with his key people trying to find a way out. The odds on favorite had been that Goodfriend was mentally unhinged through stress of work and therefore his outrageous claims were clearly the last desperate acts of a madman. If people, particularly the likes of the nosey journalist who had called him earlier in the day, began to snoop around, it could spook the market. Beirsdorf’s stock would fall, interbank lending rates would jump and the bank would face a liquidity crisis.

 
Beirsdorf Klein’s well-oiled PR machine, aided by a small army of well-placed agencies located around the world, had been hard at work all day denying that Goodfriend’s death had anything to do with the bank’s financial position and everything to do with a deeply troubled mind. It had occurred to Delaney that releasing details of Goodfriend’s passion for thrashing underage girls might also serve to muddy the water and switch the media focus from the bank to Goodfriend. Delaney believed in knowing everything there was to know about his key people. Now and again it paid off. He had decided to hold that slice of information in reserve. No point in firing with both barrels and leaving himself without ammunition if the situation got worse.

  “
Edgar, how are you? How’s life in the hot seat?”

 
Edgar Lindstrom had been nominated as President Gilmore’s treasury secretary six months previously. With the markets sliding from the day he joined, followed closely by the bankruptcy of Hausmann Jakob,
Lindstrom’s job had been far from the relatively easy ride the global economy had afforded his predecessor.

 
Delaney had been hoping to avoid this particular conversation. He and Lindstrom had known each other for years, had started out at Citi together. He doubted that this was a social call.

  “
Getting hotter every day, Rick, but we seem to be holding things together. Although, frankly speaking, it sounds as though you’re the one in the hot seat today. What’s going on over there?”

  “
One of our senior people in Europe hung himself in the washroom. Stress. Booze. No one picked up on it. Poor bastard finally flipped.”

  “
Apparently,” said Lindstrom, “he e-mailed some members of the British press claiming Beirsdorf was up to its eyes in debt.”

  “
That’s not news, just about every bank in the Western hemisphere is leveraged up the wazoo. You know it, I know it, everyone knows it. As long as the markets hold together and everyone keeps their nerve, we’ll all come in for a soft landing. In three years, with a bit of belt tightening all round, everything will be back to normal.”

  “
Sure, Rick, sure,” said Lindstrom, “but that wasn’t what concerned me. Goodfriend also sent an attachment, a copy of his resignation letter to you.”

 
For the second time that day, Delaney felt the hollowness of fear spread throughout his body.

  “
What do you mean, Edgar?”

  “
Rick, the e-mail addressed to you. He states that Beirsdorf has been pushing its losses on US subprime assets onto its UK subsidiary. Remember Enron, Rick. We brought in rules against off-balance sheet accounting for a reason. I’d be very concerned if you guys have been dumping flakey US assets on the UK business to keep your own balance sheet clean.”

  “
Impossible.” Delaney’s fingers whitened round the receiver, now more bothered by his friend’s condescending tone than the fact that he’d seen a copy of the e-mail.

  “
The man was obviously nuts, tried to take down the bank as well as himself. We’ve already made a number of public statements that Beirsdorf Klein is financially sound and has no issues with liquidity. It’s puerile gossip and backbiting that are the biggest risks to the bank’s reputation. I hope I can count on your support, Edgar. If anything happens to Beirsdorf’s, the whole house of cards will come tumbling down. You know that, don’t you?”

 
His friend hesitated.
  “I’m not going to ask you for your word, Rick, we’ve known each other too long for that. Make sure you keep an even keel and dispel these rumors before it all gets out of hand. I have a policy meeting with the president tomorrow and he doesn’t like surprises.”

  “
Okay, Edgar, gotta run.”

 
Delaney had made sure that only he and Beirsdorf’s CFO, Jamie Greer, knew the full extent of the assets they had managed to make disappear thanks to lax UK accounting rules. The problem with these particular assets was that they were rapidly turning into substantial liabilities. As the market for subprime CDOs had dried up, prices had fallen sharply. These particular assets should indeed be represented on the US parent company’s balance sheet. Should that ever happen it would reveal that Beirsdorf Klein had a sixty-billion-dollar capital shortfall. If the news got out, Beirsdorf’s stock would dive from eighty dollars per share to close to zero in a matter of hours. The one-hundred-twenty-three-year-old investment bank would be wiped out within a week.

Chapter 51

  On the floor below him people buzzed like insects around the magnificent trading hall. Hundreds of blue jacketed traders buying and selling stocks and shares in America’s most successful companies, including Beirsdorf Klein. The opening ceremony was an age old tradition at the New York Stock Exchange building. Generally speaking, the CEOs of companies that were newly listing on the Exchange or those that had enjoyed outstanding share price performance were given the honor of ringing the opening bell. Beirsdorf Klein had just enjoyed not only the fastest quarterly growth in its own history, but also that of any listed bank.
  Rick Delaney stood on the podium, his hand hovering over the button. The mayor of New York, Danny Greenbaum, and the head of the NYSE standing behind him. The traders had stopped, their faces upturned towards him like a tribe of worshipping savages. As the hand on the clock moved to the center of the figure six, he hit the button, the bell ringing loudly throughout the cavernous building.

Rrriiiiiing, rrriiiiiing, rriiiiing, rrriiiiing

  Delaney’s wife shook him.

  “I don’t care if it’s the Queen
of England, tell whoever this is never to call again at three o’clock in the morning.” She pushed the receiver of the cordless phone into his hand and turned her back on him.

  “
Delaney,” he said flatly, getting up out of bed and walking towards his study.

  “
Rick, its Tim Wellman. Sorry to get you up in the middle of the night, but this is big.”

 
Tim was Beirsdorf’s UK CEO and Goodfriend’s right-hand man. He would never have called Rick at this time if it wasn’t serious.

  “
What’s the problem, Tim, I could really use the sleep.”

  “
The FTs run a story on us. It’s not pretty. It says we’ve been hiding dodgy assets through a loophole in accounting regulations. They claim we’re insolvent to the tune of at least fifty billion, maybe more.”

 
Christ, Delaney thought, this isn’t going to go away.

  “
It’s bullshit, Tim. But that doesn’t matter now. I’ll call Lindstrom. We’re going to need some help. I’ll call you back later this morning.” He hung up. Delaney went through to his office and pulled out his Rolodex.

 
Edgar Lindstrom answered on the second ring.

  “
Edgar, sorry to wake you, it’s Rick.”

  “
Don’t worry, I wasn’t asleep. Still hard at it preparing for the policy review tomorrow. You just caught me, I was about to turn in.”

  “
We have a problem. The
Financial Times
has run a story claiming that Beirsdorf’s is illiquid, fifty billion under. We’re going to need help. Now.”

  “
Rick, the FT doesn’t print gossip. You told me Goodfriend’s claims were nonsense.”

  “
They are, Edgar, I can assure you. I don’t know who the FT managed to find to corroborate this junk.”

  “
It doesn’t matter. Tomorrow, or rather today, you’re in for a hell of a ride. If it’s not true, then categorically deny it. I’ll speak to Elisabeth Kennedy and sound her out on possible support from the Fed. This is something that we’ve prepared for. Let’s just hope that you don’t need it.”

---

  When the New York Stock Exchange opened at nine thirty that morning, shares in Beirsdorf Klein went the same way they had been going on the London market for the previous five hours. Down. By lunchtime, the bank had lost half its value. When, by three p.m., the bank’s stock had fallen a further thirty percent, the Board of the Exchange decided to take the unusual step of suspending trading in the bank’s shares. Beirsdorf Klein shareholders had lost a total of almost one hundred billion dollars in the space of only five and a half hours.

Chapter 52

  Elisabeth Kennedy was shown into the treasury secretary’s conference room at eight by his assistant. She had not slept since Edgar Lindstrom’s call at four that morning. The call she had been waiting for. Elisabeth asked for a large black coffee and took a seat facing away from the windows, one down from the head of the table. The chairs were mahogany and brown leather, the room formal, at the same time unimposing. With one exception. She tilted her head to look up at the original portrait of George Washington, his steely gaze in her direction, somber and with great dignity. Elisabeth felt terribly ashamed for what she was about to do.

 
At that moment, Edgar Lindstrom and Rick Delaney strode into the room chatting amiably to one another. The bookish assistant followed and took a seat close to, but not beside, Elisabeth. Edgar took the seat at the head of the table and Rick Delaney directly across from her.

 
The two men were of similar ages, but of vastly different appearance. Delaney was short, with dark hair where there was still some left to see. He was clearly overweight and had soft features, but at the same time his eyes were sharp, taking her all in. He had a tremendous energy about him, or perhaps it was nervousness. He was fidgeting, one moment tapping his fingers on the table, then rubbing his chin with his left hand, then back to the table with his fingers. He put Elisabeth on edge almost as soon as he sat down.

 
Edgar Lindstrom, on the other hand, was tall, slim, also with receding hair which was fair, and blue eyes. He sat straight as a rod, calm and in control, waiting for Delaney to settle himself.

  “
Elisabeth, you know why we’re here. Unfortunately, we have been expecting this day to come and it looks as though Beirsdorf Klein is the one that’s going to have to bite the bullet. The bank is too big to fail. Its bankruptcy would have unthinkable consequences for the markets. Rick’s here to discuss the terms of the guarantees that the government will extract from Beirsdorf Klein shareholders in exchange for its generosity.”

  “
Cynthia, you getting this down?”

  “
Yes, Mr. Lindstrom,” the assistant replied.

  “
I’ll ask each of you to sign a copy of the notes that Cynthia is taking before you leave today, as a record of our discussion.”

  “
I won’t support any move to bail out the bank,” said Elisabeth, staring straight into Delaney’s eyes.

 
The two men were stunned into silence. Delaney got there first.

  “
What the hell are you talking about? We don’t need bailed out, we need a fifty-billion-dollar guarantee from the government to enable Beirsdorf’s to maintain open credit lines and keep on trading. The situation will recover. We will not need to draw on the money.”

  “
And if you do?” retorted Elisabeth.

  “
Rick, let me.” Edgar had known Delaney for a long time. Mostly they got along. Nevertheless, the man was known for having a short fuse. Edgar didn’t want to end up in a situation where he was having to pry Delaney’s fingers from around Elisabeth Kennedy’s neck.

  “
Elisabeth, it’s been previously discussed and agreed, at the highest level, that should such a situation as this arise, the government would have no option but to be supportive.”
  “Mr. Lindstrom, Edgar, I appreciate your point of view, but I do not believe that Beirsdorf Klein qualifies for this type of support. The bank makes its money from advising clients, trading on the markets on behalf of those clients and effectively wagering its own funds. Government guarantees are not for organizations that purely exist for the benefit of their own shareholders. Banks that provide mortgages to homeowners and lend money to corporate enterprise are the types of organization the government and the Federal Reserve should support. I cannot justify putting fifty billion dollars at risk because your shareholders got greedy, Mr. Delaney. I don’t believe there is anything more to discuss.”

 
Elisabeth had noticed Rick Delaney’s face grow redder with every word she said and hoped the man wasn’t going to collapse onto the floor holding his chest. She had also decided that now would be a good time to leave before she found out if his reputation for having a short temper was deserved.

 
As she stood, so did Delaney.

  “
Elisabeth, please sit down and discuss this. I don’t understand what’s going on,” said Lindstrom, frowning, perplexed.

  “
Where the hell do you think you’re going? You know as well as I do that if you pull the plug on Beirsdorf’s, the whole system will collapse.” He was pointing at her now, stabbing his finger in the air like a knife. “You’re the one condemning this country to a financial nuclear winter for years to come. I won’t let you do it. I’ll do whatever I have to do to keep my bank alive.”

 
Elisabeth kept on walking, Delaney’s hysterics failing to ease the pain she felt at betraying her country’s trust. She could feel the first president’s eyes burning into her back as she walked through the door.