Reborn in Tokyo: From Heiress to Global Tycoon

Late September.

New York, Salomon Brothers headquarters, 47th floor.

The materials on John Gutfred's desk were piled up three layers high.

At the bottom is a photocopy of the letter from the Ministry of Finance last week, the middle stack is the latest memo sent by the legal team last night, and on top is a summary of customer account changes that was just received from the risk control department this morning.

There was a cup of coffee in front of him, long since cold, but he hadn't touched it all morning.

His stomach was burning from days of disrupted sleep; if he drank another cup, he probably wouldn't be able to see anyone that afternoon.

At that moment, there was a knock on the door, and Williams pushed the door open and came in.

"sit."

Gutfred didn't even look up.

Williams was used to this arrangement. He walked straight to the chair opposite the desk, sat down, and placed a brown folder between them.

"Should I tell you the good news first, or the bad news?"

"Ha." Gutfred raised his eyes and let out a laugh. "Is there any good news at a time like this?"

"To be precise, there is one piece of news that hasn't gotten any worse."

"Let's talk about this first."

"The credit line with Morgan Stanley was reassessed yesterday, and there has been no further reduction." Williams opened the folder. "It's consistent with the terms we discussed last week; the short-term repurchase limit remains at $1.2 billion."

Gutfred tapped his finger lightly on the table.

1.2 billion... Just three months ago, that number was a fucking 2.4 billion!

If losing half is considered not worse, then that's good news...

"Bad news."

Williams' expression didn't change much, he just lowered his voice by half a syllable.

"The California Public Employees Retirement System notified us this morning that it has suspended Salomon Brothers from adding new orders to its fixed-income trading authorization list."

Gutfred stopped.

"pause?"

"Yes, it's suspended. It hasn't been lifted yet," Williams quickly added. "Their statement is that it will be reinstated 'after the internal compliance review is completed.'"

"How long should we wait?"

"They didn't give us time."

Gutfred leaned back in his chair and took off his glasses, placing them on the table.

Without glasses, my face looks several years older. My eye sockets are much deeper than last month, and my jawline is more prominent because I've lost weight recently.

The California Public Employees Retirement Fund manages nearly $70 billion.

The amount of money entrusted to Solomon is not a matter of life or death for Solomon itself, but it is one of the largest public pension funds in the United States.

Once it publicly suspends its authorization, all the mid-sized pension funds, insurance companies, and endowments that follow it will have a reason to do the same.

"The list," Gutfred said.

Williams has turned to the next page.

"In the past two weeks, a total of fourteen institutional clients have suspended or reduced their trading authorizations with Salomon Brothers."

He didn't read out the names of each family; he just pushed the documents over.

Gutfred took it, put his glasses back on, and read it over from beginning to end.

There are three pension funds, two insurance companies, one state government investment office, four university endowment funds, and several medium-sized asset management companies.

The loss of any one of them would not have been enough to cripple Solomon.

However, if fourteen clients terminate their contracts at the same time, it's like removing fourteen bricks from the wall, making the already unstable wall even more precarious.

"Who else is still watching?"

"There's no official notification yet, but we're internally reassessing counterparty risks. We have information on about twenty companies," Williams said, pausing briefly. "TIAA-CREF asked us about our latest capital adequacy ratio last week."

When Gutfred heard the name, the corner of his mouth twitched slightly.

TIAA-CREF is the largest teacher retirement fund in the United States.

If even that leaves, then it's not just a matter of bricks anymore.

The office fell silent.

Manhattan outside the window looked much the same as usual.

Traffic moved slowly along the streets around the World Trade Center, and boats could be seen on the Hudson River in the distance.

The trading hall downstairs was operating as usual, with telephones ringing and quotes constantly being made since the market opened.

Looking at it from here, it's hard to believe that this company is going through the most dangerous period since its founding.

Solomon still had money.

It's richer than those outside who are calculating how long it can last.

Especially the profits of the past two years.

Solomon took seven billion dollars from the first phase of the Nikkei bearish trade involving Kosei-enji Temple.

They continued to handle a significant portion of the subsequent liquidation and closing out of positions. Although their commissions decreased accordingly, the cumulative income was still quite substantial.

This scandal, which later became known as the "Solomon Brothers Treasury bond auction scandal," initially only occurred within the government bond trading department.

In order to exceed the maximum holding limit for a single bidder stipulated by the Treasury Department, the trading team led by Paul Moser impersonated clients and even submitted bids for Treasury bonds without full authorization, allowing Salomon to actually control a share of new bonds exceeding the prescribed limit.

If things had stopped there, they might have been able to be handled as a few traders violating regulations.

What really caused the problem to spiral out of control was that the company's management had known about some of the situation for months but failed to report it to the Treasury Department and the Federal Reserve in a timely manner.

Now the regulatory authorities are starting to investigate along this line, and what was originally a problem with the trading desk has become a problem for the entire Solomon Islands.

But they still have money.

As the scandal began to escalate, the finance department quickly increased cash reserves and reduced some proprietary trading positions.

Even if the commercial paper that is due in the near future cannot be renewed normally, the company is currently able to repay it on its own.

How are the commercial paper prices today?

Gutfred asked again.

Williams pulled a sheet from the folder and glanced at the numbers on it.

"The renewal rate, as tallied this morning, is less than 30%, compared to 40% last week. The finance department is prepared to continue using existing liquid assets to repay the maturing portion if the rate remains at this level."

Gutfred frowned.

"With our current cash reserves, can we hold out?"

"There are no problems in the short term."

Williams pushed the form in front of him.

"But if this continues, the situation will be different. For every commercial paper that is not renewed, we will have to make up the difference ourselves."

"At the same time, counterparties are raising margin requirements, banks are reassessing credit lines, and customers are reducing their business."

As he said this, he glanced at the client list he had just seen.

"We can certainly repay the money today, and probably next month as well. But if the market continues to believe that Solomon is contracting, the next round of terms for us will only be worse."

Gutfred did not speak.

Williams paused for a moment before continuing:

"So the real problem now is no longer whether we have money or not."

These words made Gutfred's face darken.

Solomon isn't being strangled by cash yet, but it's gradually losing the reason why people want to continue doing business with it.

And they have tried many methods.

The legal team spent almost the entire time in the building, going through all the bidding records, client authorizations, and internal reports from the past few years.

I don't know how many times I've made trips to the Treasury Department, the Securities and Exchange Commission, and the Federal Reserve.

Initially, the company tried to keep things within the government bond trading desk.

Several traders used clients' names to inflate their bids in order to circumvent the Ministry of Finance's bidding cap.

If things had ended there, with the relevant personnel dealt with and a sufficiently large fine paid, Solomon would still have had a chance to close the door on the problem.

But regulators have already started investigating something else.

Who knows first?

When will we find out?

Why didn't you report it promptly after finding out?

The Ministry of Finance had raised inquiries about some abnormal bidding several months ago, and the company did not only recently discover that there were problems with the trading platform.

If we keep chasing this trend, it will eventually move beyond just the trading hall.

Ultimately, this affected their management team.

Gutfred picked up the cup of coffee, which had long since gone cold, took a sip, and quickly frowned as he put it back.

"What did the lawyer say?"

"The old approach remains the same. We will proactively cooperate and strive to limit the penalties to fines, personnel disciplinary actions, and localized business restrictions."

"Is there any way they can make the Treasury Department forget that we already knew about this?"

Williams paused for a moment.

"no."

"That means the problem wasn't solved."

Gutfred leaned back in his chair.

The relationship with Washington in the past was pretty much the same.

The phone call still goes through.

In the past, people who were willing to have dinner together would occasionally have their secretaries reply.

But with the investigation already under the nose of Congress, no one wants to be portrayed by the media as putting pressure on regulators on behalf of Solomon at this time.

The New York Fed's stance is also very clear.

They don't want Solomon to suddenly collapse, to avoid market chaos as a result.

But Solomon has created trouble for himself, and he has to satisfy the Treasury himself.

Now everyone knows what "satisfaction" means.

After Williams finished speaking, he turned to another page of the document in his hand.

"There's one more thing."

Gutfred looked up at him.

"Several companies in the same industry have already started contacting our people."

These words made Gutfred's expression turn quite unpleasant.

Which companies?

"Goldman Sachs, Morgan Stanley, and Merrill Lynch all have them."

Williams pushed the document forward a bit.

"The most obvious sign is at the government bond trading desk, and people in fixed income and institutional sales have also received invitations. There haven't been large-scale departures yet, but if this drags on any longer..."

Damn it, these damned vampires, Solomon hasn't even fallen yet and they're already trying to steal people...

Gutfred took a deep breath and lay back down in the chair.

Wall Street isn't as gentle as vultures; they won't wait until a company is truly dead before dividing their spoils.

They can tear your flesh off while you're still breathing.

By the time Solomon was truly finished, most of the people who were supposed to leave had already left.

The same goes for customers.

Even if the Treasury Department doesn't revoke Solomon's primary dealer status in the end, the largest pension funds, insurance companies, and funds have already moved their business elsewhere, so keeping that license won't save them anything.

The office was silent for about ten seconds.

The afternoon light outside the window in Manhattan had turned a grayish color. Clouds had drifted in and covered the entire sky, making the streets below darker than usual.

He stood with his back to Williams for a while.

"So what did you come to tell me today?"

Williams' voice came from behind.

"John."

"Um."

"I think it's time to have a serious talk with Warren."

Gutfred did not turn around.

But his shoulder visibly stiffened.

"Buffett?"

"Berkshire is the company's most important shareholder, and you know better than I do about his influence on the board," Williams said, watching Gutfred's retreating figure. "If there's anyone in the US right now with enough personal credibility, enough capital, and enough political approval to help Salomon rebuild trust with regulators—"

"You don't need to read my resume aloud," Gutfred interrupted him.

The voice was much harsher than before.

He turned around.

"I know what Warren can do."

Williams looked at him without saying a word.

"The problem isn't whether he can save Solomon," Gutfred said, walking back to the table and resting one hand on it, his voice growing increasingly urgent. "The problem is whether the Solomon he's willing to save is the same Solomon he is now."

Williams remained silent.

"You think I haven't thought about this?" Gutfred's tone betrayed a barely suppressed irritation. "If Warren Buffett were to endorse Salomon, how would the market react? What would the regulators think?"

"Of course it works, it's effective. One word from him in Washington is more effective than twenty lobbyists I could send in."

He paused for a moment.

"But Warren never does business that isn't profitable."

Gutfred sat down again.

"What were his conditions for being willing to come out and save Solomon? First, complete transparency. All internal investigation materials, timelines, and reports were laid out and handed over to the regulatory authorities without any reservations."

Williams nodded slightly.

"Secondly, management must take responsibility. Not just the kind of responsibility that ends with punishing a few traders, but the responsibility that shows regulators and the public that the people who made the decision to delay reporting have been removed."

Gutfred's voice became somewhat calmer at this point.

"Warren will ask the board to restructure the senior management team, and he will push for a full settlement with the Treasury Department. He may even personally take over day-to-day operations for a period of time, at least to convince Corrigan and the Treasury Department that Salomon will not have the same problems again."

He looked up at Williams.

"Of these conditions, which one do you think allows John Goodfred to continue sitting in this chair?"

Williams remained silent for several seconds.

"John—"

"If the final result is that the entire company is handed over to Warren Buffett," Gutfred's voice lowered. "Letting him decide who stays and who goes, how to negotiate with the government, how to reorganize the management... that's no different from me announcing my own resignation."

He picked up the glasses from the table, then put them back down.

"Solomon may still be alive."

"But that's no longer my Solomon."

After those words were spoken, the office remained silent for a long time.

Williams looked at him and sighed deeply.

"John, this is the most promising option. We'll have to do this sooner or later—"

"Then let's wait until that time."

Gutfred interrupted him, forcefully pushing aside the documents in front of him.

"At least for now... I haven't lost yet."