Sir Robert did not particularly like formality and liked to think of his office in the bank as a, well, place of refuge. The furnishings reflected this. The pièce de résistance was the huge model of his family yacht, built in 1936. The more one’s gaze wandered around the room, the more apparent the marine touch became. Here a painting of somebody or other in an admiral’s uniform; there an extremely old telescope, on a massive circular mount. A look inside the bar would have revealed an unusually high ratio of rum to whisky.
The explanation was quite simple. The Winthrop family had always had really two responsibilities: the navy and the coin of the realm. Sir Robert, as a result of the wisdom of his father who had recognized quite early the rather limited intellectual capacity of his second son, had been delegated as the family guardian of the seas. The elder brother, James, had been selected for the bank. Robert had been happy in the hearty company of his peers, until tragedy had struck in the form of the very early demise of his brother. Overnight Robert became a banker. But, though he bumbled his way through, he had never really got into the spirit of the whole thing. He had never felt the need to spend sleepless nights over falling profits or to gloat over the humiliation of a competitor. He was steadfast in his faith that Winthrop’s, come what may, would always find its way through, He was willing to serve his time at the helm out of duty, not pleasure.
This particular morning was proving a bit awkward to get underway. It was too early to offer something to drink, and in view of the solemnity of the occasion, it would definitely be out of place to get too involved in small talk. Sir Robert decided the situation called for a no-nonsense, to-the-point sort of approach. So he plunged right in.
“Gentlemen, since I have the privilege of being the host at this meeting, I would like to confirm that we have just two matters on the agenda, namely, Transcontinental Airlines and Canadian and Western Oil. I propose that we get right to them.”
Both Walter Hofer and David Mason nodded their agreement, so Sir Robert went on.
“The Transcontinental situation, which our American colleague brought to us some time ago, has created a very serious problem for my bank. I’ll summarize the background for your benefit, Walter. The company, like so many airlines, developed a very serious cash flow problem as a result of its massive equipment purchases and almost stagnant passenger growth. Bills to pay, and insufficient current income to meet them. Transcontinental has always had the Republican Bank in New York as its prime bank, and thus David, here, is on their board. He arranged for the company to get the maximum line from his bank, namely $80 million, and also helped them establish quite substantial lines with other banks in the West over the years. Under the unusual circumstances, the company still ran short of cash, so our American colleague assisted the company in raising an additional $50 million in Europe. We at Winthrop’s agreed to serve as the managing underwriter in London to place the two-year promissory notes selected as the vehicle for obtaining these funds.”
Sir Robert now focused his attention on David Mason.
“We have put our name very firmly on this issue, but it still proved difficult for us to put together a syndicate. In the end, after much arm-twisting, we were able to place most of it; 75 percent to be exact. The rest, of course, we are still stuck with.”
Winthrop shifted his gaze back to Hofer.
“At the end of last week David informed me that the company is not coming back in the way hoped for. There is a real possibility that Transcontinental might be forced into receivership within the next six months. At least that’s what David tells me. And I think we have no reason to doubt his opinion. After all he is vice chairman of the company’s board.”
David Mason winced slightly at these last words. Sir Robert knew quite well that, as a director of that company, Mason had perhaps bent some rules in expressing this opinion—although it was a strictly private opinion, of course.
Sir Robert went blithely on. “In all fairness, David has indicated to me his most strong feelings of moral responsibility and regret, but unfortunately it seems that he cannot help us out at the moment. Maybe you could expand a bit on that aspect of this mess, David.”
Sir Robert was highly relieved to have got all this off in such splendid order. Normally, he was not burdened with such difficult details. His most able management had repeatedly stressed to him—for many years now—that his genius lay in the big picture, in defining principles, in soothing the outraged client. The more mundane aspects of the bank were, indeed, better left to others. But today Sir Robert had no choice. All this cut a bit too close to the quick.
The head of the Republican Bank of New York, fifty-nine years old, with an eleven handicap, five grandchildren, and a slight hangover, would also have most gladly left this somewhat painful discussion to others. But unfortunately…
“Well, I don’t really think the situation needs much expatiation,” said Mason. “My bank is at the legal lending limit to one company with the $80 million we’ve got out now. So as much as I would like both to pump some more money into that company and to take some of that paper off of the hands of our friend Sir Robert, I’m afraid that I cannot do either. We are going to have one hell of a time explaining the amount we already have on the books without taking on any more. If that airline goes belly up, we are going to have to create a special reserve of at least $40 million next year against our loans. Uncle Sam will pay for half of it, but the other half will have to come right out of earnings. So that will mean that the shareholders are going to be looking for blood. My blood.”
Mason sighed before continuing. “So that’s about it, Robert. We got you into this thing, but I’m afraid that at the moment we can’t get you out. Let me say this, though. The situation at Transcontinental is by no means hopeless. They may very well squeeze through this thing. But if the people here in London start getting panicky about those promissory notes, and the word spreads, then we’re all in trouble—and for damn sure.”
David Mason leaned back. Obviously both he and Sir Robert were expecting their old buddy from Zurich to pick up the ball. But Walter Hofer seemed completely oblivious to such expectations. He reached across the coffee table and helped himself to a cigar. He was soon deeply involved in the ritual of lighting it.
The morning was proving to be extraordinarily strenuous for Sir Robert, for he had no choice but to resume. “Well, I think both of you deserve to know that we at Winthrop’s find ourselves in a most awkward position at present. If, as you put it, David, the market here does get panicky about the Transcontinental paper, it would mean that we would be hit with a bomb of major proportions for the third time in almost as many years. As you know, we involved our partner banks and clients in the Penn Central fiasco of 1970. Last year, just three months after we sponsored the prime underwriting of a £20-million new issue of the Zambian Nickel Mines, the whole story of that tremendous ore find turned out to be fictitious, complete tommyrot. Damn embarrassing, that. The City took the first thing rather well. After all, even Winthrop’s makes a mistake once or twice a century. But they took the Zambian debacle much less well. If Transcontinental goes bad, I’m afraid that we will be out of the underwriting business for a while. The only answer for us is to take back that paper which we sponsored in the market. We will have to take it back at near par. In other words, we are going to be stuck with the whole $50 million of the original issue, notes which, if not worthless, at least will probably not be repaid for years. Gentlemen, this would exhaust our liquidity. We simply cannot afford to have that amount of money tied up indefinitely.”