The Secret Club That Runs the World: Inside the Fraternity of Commodity Traders by Kate Kelly Page B
Authors: Kate Kelly
Ads: Link
transaction were confusing, the economic impact of it could be understood simply: ifMorgan Stanley had wanted to collect on the puts, Emirates could, effectively, have had to buy crude oil from Morgan for $70 per barrel and receive as little as $50 per barrel in return. Although Morgan had not yet invoked its right to sell the oil to Emirates at those inflated prices, it wanted reassurance that the money Emirates would owe it if it chose to use them would be there.So, late in 2008, it issued the margin call, a demand for additional cash from the airline.
Emirates executives scrambled. They didn’t have billions of dollars in cash handy, so they had to source it from elsewhere. Letters of credit from various banks were issued, and at one point, Emirates put about $2 billion in cash in its margin account. But the full amount, of more than $4 billion, was not forthcoming, and West Texas prices were going even lower.
Some Morgan Stanley executives, who had reduced the overall margin demand thanks to their long-standing ties to Emirates, grew alarmed. True, the Emirates debt was unlikely to become an issue unless the airline suddenly went bankrupt. But they couldn’t rule out that possibility. The U.S. banking community had barely recovered from the financial crisis, even after a nearly $700 billion taxpayer bailout the October before, and cash was critical. The Federal Reserve’s office was asking questions, and so were Morgan Stanley’s board members.
“The psychology in those days was, if Lehman could fail, anything could happen,” says the Morgan official who was involved at the time.
Early in 2009, with West Texas contracts trading in the $40 range, John Mack and two lieutenants flew to Dubai to meet with Emirates management. They had been invited to see the city-state’s ruler, Sheikh Mohammed bin Rashid Al Maktoum, in his desert lodge, about 45 minutes’ drive from Dubai, for evening tea.
Using his limited Arabic, Mack greeted Sheikh Mohammed bin Rashid, nicknamed “Sheik Mo,” and his uncle, Sheikh Ahmed bin Saeed Al Maktoum, the Emirates chairman. Mack was warmlyreceived. In addition to their business dealings with Morgan Stanley, Sheik Mo and three of his sons had visited with the bank’s board during a scheduled gathering in Dubai in 2006 (designed, no doubt, to curry favor for the booming and increasingly indebted metropolis). They liked the firm, it seemed, and were impressed with its embattled chief executive, who, despite his modest grasp of Arabic, had Middle Eastern roots himself and took the time to call on them regularly.
The group settled into their seats, and coffee and tea were served. “Tell us what’s going on in the world and on Wall Street,” the ruler asked Mack. “When is all this going to end?”
Mack and Sheik Mo commiserated over their respective dilemmas. Mack had narrowly avoided a bank failure in September, and Dubai, which had become an international hub for real estate, finance, and tourism under Sheik Mo’s watch,was being criticized for overbuilding and amassing huge debts. Perhaps more embarrassingly, the arrest oftwo drunken British travelers for having sex on a local beach had brought months of headline damage to Dubai, where people took offense at such vulgar public activities.
The sheikh seemed incredulous about the sex scandal. “If you, in the U.S., find two people on the beach who are not married having sex, and the policeman tries to tell you you cannot do this and the woman gets up and slaps the policeman, would you arrest them?” he asked.
“Of course,” said Mack sympathetically. It was a no-win situation, he added.
Mack soon turned the topic to the financial struggles in Dubai. “How are you getting through this?” he asked gently.
“We’re suffering the same issues as everybody else and we’regoing to walk through them,” the ruler replied. “We are one country, we are one state, and if we need to financially assist institutions, we will do
Emirates executives scrambled. They didn’t have billions of dollars in cash handy, so they had to source it from elsewhere. Letters of credit from various banks were issued, and at one point, Emirates put about $2 billion in cash in its margin account. But the full amount, of more than $4 billion, was not forthcoming, and West Texas prices were going even lower.
Some Morgan Stanley executives, who had reduced the overall margin demand thanks to their long-standing ties to Emirates, grew alarmed. True, the Emirates debt was unlikely to become an issue unless the airline suddenly went bankrupt. But they couldn’t rule out that possibility. The U.S. banking community had barely recovered from the financial crisis, even after a nearly $700 billion taxpayer bailout the October before, and cash was critical. The Federal Reserve’s office was asking questions, and so were Morgan Stanley’s board members.
“The psychology in those days was, if Lehman could fail, anything could happen,” says the Morgan official who was involved at the time.
Early in 2009, with West Texas contracts trading in the $40 range, John Mack and two lieutenants flew to Dubai to meet with Emirates management. They had been invited to see the city-state’s ruler, Sheikh Mohammed bin Rashid Al Maktoum, in his desert lodge, about 45 minutes’ drive from Dubai, for evening tea.
Using his limited Arabic, Mack greeted Sheikh Mohammed bin Rashid, nicknamed “Sheik Mo,” and his uncle, Sheikh Ahmed bin Saeed Al Maktoum, the Emirates chairman. Mack was warmlyreceived. In addition to their business dealings with Morgan Stanley, Sheik Mo and three of his sons had visited with the bank’s board during a scheduled gathering in Dubai in 2006 (designed, no doubt, to curry favor for the booming and increasingly indebted metropolis). They liked the firm, it seemed, and were impressed with its embattled chief executive, who, despite his modest grasp of Arabic, had Middle Eastern roots himself and took the time to call on them regularly.
The group settled into their seats, and coffee and tea were served. “Tell us what’s going on in the world and on Wall Street,” the ruler asked Mack. “When is all this going to end?”
Mack and Sheik Mo commiserated over their respective dilemmas. Mack had narrowly avoided a bank failure in September, and Dubai, which had become an international hub for real estate, finance, and tourism under Sheik Mo’s watch,was being criticized for overbuilding and amassing huge debts. Perhaps more embarrassingly, the arrest oftwo drunken British travelers for having sex on a local beach had brought months of headline damage to Dubai, where people took offense at such vulgar public activities.
The sheikh seemed incredulous about the sex scandal. “If you, in the U.S., find two people on the beach who are not married having sex, and the policeman tries to tell you you cannot do this and the woman gets up and slaps the policeman, would you arrest them?” he asked.
“Of course,” said Mack sympathetically. It was a no-win situation, he added.
Mack soon turned the topic to the financial struggles in Dubai. “How are you getting through this?” he asked gently.
“We’re suffering the same issues as everybody else and we’regoing to walk through them,” the ruler replied. “We are one country, we are one state, and if we need to financially assist institutions, we will do
Similar Books
