The Moneychangers

***

On leaving the hotel, Heyward bought an evening paper. A two column heading, halfway down the front page, attracted his attention.

Supranational Corp. Disquiet How Solvent Is Global Giant7

15

No one ever knew what specific event, if any, provoked the final collapse of Supranational. Perhaps it was one incident. Or it could have been the accumulated weight of many, causing gradual shifts in balance, like a growing strain on underpinning, until suddenly the roof falls in. As with any financial debacle involving a big public company, isolated signs of weakness had been evident for weeks and months beforehand. But only the most prescient observers, such as Lewis D'Orsey, perceived them as a pattern and communicated warnings to a favored few. Insiders, of course including Big George Quartermain who, it was later learned, sold most of his shares through a nominee at SuNatCo's all-time high had more warning than anyone and bailed out early.

Others, tipped off by confidants, or friends returning favor for favor, had similar information and quietly did the same.

Next in line were those like Alex Vandervoort acting for First Mercantile American Bank who obtained exclusive information and swiftly unloaded all SuNatCo stock they had, hoping that in any later confusion their action would not be probed. Other institutions banks, investment houses, mutual funds seeing the stock price slide and knowing how the insider system worked, soon sized up the situation and followed suit.

There were federal laws against insider trading on paper.

In practice, such laws were broken daily and were largely unenforceable. Occasionally in a flagrant case, or as a whitewash job, an accusation might be leveled with a picayune penalty. But even that was rare. Individual investors the great, hoping, trusting, naive, beaten, suckered public were, as usual, the last to know that anything was wrong.

The first public intimation of SuNatCo's difficulties was in an AP newswire story, printed in afternoon newspapers the same news story which Roscoe Heyward saw on leaving the Columbia Hilton. By the following morning a few more details had been garnered by the press and amplified reports appeared in morning papers, including The Wall Street Journal. Even so, details were sketchy and many people had trouble believing that anything so reassuringly sizable as Supranational Corporation could be in serious trouble. Their confidence was soon assailed.

At 10 A.M., at the New York Stock Exchange, Supranational shares failed to open for trading with the rest of the market. The reason given was "an order imbalance." What this meant was that the trading specialist for SuNatCo was so swamped with "sell" orders that an orderly market in the shares could not be maintained.

Trading in SuNatCo did reopen at 11 A.M. when a big "buy" order of 52,000 shares crossed the tape. But by then the stock, which had traded at 48 a month before, was down to 19. By the afternoon closing bell it was at 10. The New York Stock Exchange would probably have halted trading again the following day, except that overnight the decision was taken from its hands. The Securities and Exchange Commission announced that it was investigating the affairs of Supranational and, until its inquiry was completed, all trading in SuNatCo shares would be suspended.

There ensued an anxious fifteen days for the remaining SuNatCo shareholders and creditors, whose combined investments and loans exceeded five billion dollars.

Among those waiting shaken, nervous, and nail biting were officers and directors of First Mercantile American Bank.

Supranational did not, as Alex Vandervoort and Jerome Patterton hoped it might, "hang on for several months."

Therefore the possibility existed that late transactions in SuNatCo shares including the big block sale by FMA’s trust department might be revoked.

This could come about in one of two ways either by order of the SEC following a complaint, or by purchasers of the shares bringing suit, claiming that FMA knew the true condition of Supranational, but failed to disclose it when the shares were sold.

If that happened, it would represent an even greater loss to trust clients that they already faced, with the bank almost certainly liable for breach of trust.

There was one other possibility which had to be faced and it was even more likely. First Mercantile American's fifty-million-dollar loan to SuNatCo would become a "write-off," a total loss.

If so, for the first time in FMA history the bank would suffer a substantial operating loss for the year. It raised the probability that FMA's own next dividend to shareholders would have to be omitted. That, too, would be a first.

Depression and uncertainty permeated the higher councils of the bank. Vandervoort had predicted that when the Supranational story broke, the press would start investigative reporting and First Mercantile American would be involved. In this, too, he was right. News reporters, who in recent years had been motivated by the example of the Washington Post's Watergate heroes, Bernstein and Woodward, bored in hard.

Their efforts were successful. Within several days, newspeople had developed sources inside and outside Supranational, and exposes of Quartermain's sleight-of-hand began emerging, as did the conglomerate's shady "Chinese accounting." So did the horrendously high figure of SuNatCo's indebtedness. So did other financial revelations, including FMA's fifty-million-dollar loan.

When the Dow Jones news service tapped out the first reference linking FMA with Supranational, the bank's public relations chief, Dick French, demanded and was granted a hastily summoned top-level conference.

Present were Jerome Patterton, Roscoe Heyward, Alex Vandervoort, and the burly figure of French himself, the usual unlighted cigar in a corner of his mouth. They were a serious group Patterton glowering and gloomy, as he had been for days; Heyward seeming fatigued, distracted, and betraying nervous tension;

Alex with a mounting inner anger at being involved in a disaster he had predicted, and which need never have happened. "Within an hour, maybe less," the PR vice-presidentbegan, "I'm going to be hounded for details about our dealings with SuNatCo. I want to know our official attitude and what answers I'm to give." Patterton asked, "Are we obliged to give any?" "No," French said. "But then no one's obliged to commit hara-kiri either."

"Why not admit Supranational's indebtedness to us," Roscoe Heyward suggested, "and leave it at that?" "Because we won't be dealing with simpletons, that's why.

Some of the questioners will be experienced financial reporters who understand banking law. So their second query will be: How come your bank committed so much of its depositors' money to a single debtor?" Heyward snapped, "It was not to a single debtor.

The loan was spread between Supranational and five subsidiaries." "When I say it," French said, "I'll try to make like I believe it." He removed the cigar from his mouth, laid it down, and drew a note pad toward him.

"Okay, give me details. It'll all come out anyway, but we'll look a lot worse if we make this painful, like a tooth extraction."

"Before we go on," Heyward said, "I should remind you we're not the only bank to whom Supranational owes money. There's First National City, Bank of America, and Chase Manhattan."

"But they all headed consortiums," Alex pointed out. "That way, any loss is shared with other banks. So far as we know, our bank has the greatest individual exposure." There seemed no point in adding that he had warned all concerned, including the board of directors, that such a concentration of risk was dangerous to FMA and possibly illegal.

But his thoughts continued to be bitter. They hammered out a statement admitting First Mercantile American's deep financial involvement with Supranational and conceding some anxiety.

The statement then expressed hope that the ailing conglomerate could be turned around, perhaps with new management which FMA would press for, and with losses minimized.

It was a wan hope and everybody knew it. Dick French was given some leeway to amplify the statement if he needed to, and it was agreed he would remain sole spokesman for the bank. French warned, "The press will try to contact ad of you individually.

If you want our story to stay consistent, refer every caller to me, and caution your staffs to do the same." That same day, Alex Vandervoort reviewed emergency plans he had set up within the bank, to be activated in certain circumstances.

'There's something positively ghoulish," Edwina D'Orsey declared, "about the attention that gets focused on a bank in difficulties