Chapter 608: Investing in Morgan Stanley

It can be said that Barron was relatively busy during his time in New York. He personally communicated with many people.

For example, after the previous meeting, he met the "rescue trio" again.

"We will inject capital into some companies, gentlemen, but these capital injections need to be evaluated first. We need to ensure the risk level of the assets owned by the other party to ensure that their operations are healthy enough after the capital injection."

After hearing Barron's words, Paulson said:

"Thank you very much for your contribution to maintaining our financial security. Your Highness the Duke, I believe that with our coordination, we can make the most executable capital injection plan."

The so-called "bailout trio" refers to Paulson, Bergnan and Gaynor.

Paulson was the Secretary of the Treasury of the United States at this time. Before that, he had served as the president of Goldman Sachs. From here, we can also see the influence of Goldman Sachs in the United States. The number of their former senior officials who held important positions such as Treasury Secretary and local chairman Quite a lot.

Bergnan was chairman of the Federal Reserve, and Geithner was chairman of the New York Fed at this time, and then in Barron's previous life, he would take over as Treasury secretary shortly after in the Okanagan administration.

These three people had a great voice and played a leading role in the government's bailout, so they were called the "Bailout Trio."

Because of the criticism caused by their previous rescue actions, the three hope to rescue and capitalize some banks through private companies and financial institutions such as DS Group and Standard Chartered Bank.

Therefore, they very much welcomed Barron's statement and promised to "communicate" on some of the policy issues.

…

On Monday, July 28, the US Dow Jones Index fell 7%; the S\u0026P 500 Index fell 8.8%, which was the largest single-day decline since the stock market crash in October 1987.

The reason for the sharp decline in the U.S. stock market was that the U.S. House of Representatives rejected the US$700 billion Troubled Asset Relief Plan by a vote of 228 to 205 that day.

Two-thirds of the Elephant Party members and two-fifths of the Donkey Party members voted against it.

The main difference in the US$700 billion asset rescue plan proposed by George W. Bush this time is that the Donkey Party wants the plan to include taxes on the financial industry and limits on the compensation of Wall Street executives, but Paulson believes that the market has no way Accepting a solution like this is like trying to save someone while simultaneously punishing him.

Another thorny issue is the timing of the release of funds. The Donkey Party members are quite certain that Olympic Guanhai will win this election. Therefore, they do not want to let the Bush administration’s Treasury use all the funds, so they want to first give $250 billion or 300 billion US dollars, leaving the remaining say in funding to the new government.

"Without this, wouldn't we have nothing to do?"

After this result appeared, Vice Commander Cheney asked:

"Doesn't the Fed have power? Don't we have power?"

"Yeah, we didn't."

Paulson replied.

After the collapse of Lehman Brothers, Paulson realized that he needed greater authority to carry out rescue operations, and this authority required congressional authorization.

Paulson needs to ask Congress for a grant to buy up troubled mortgages in the market.

As early as July 17, he submitted a plan to acquire problem assets to George W. Bush.

Paulson spent a lot of time on the final figure of $700 billion.

From a political perspective, $500 billion will make Congress unhappy, $700 billion will make Congress even more unhappy, and approaching $1 trillion may be problematic.

On the other hand, at that time, there were approximately US$11 trillion in residential mortgage loans in the United States. Based on his professional judgment, US$700 billion was enough to stimulate market vitality.

On July 31, when Paulson, Bernanke and George W. Bush had lunch together, Paulson suggested that the asset acquisition plan may also require a plan to obtain direct equity interests in financial institutions.

This is also Bernanke's long-held view, which is to directly inject capital into financial institutions when necessary.

But this kind of behavior similar to "nationalization" is difficult for the party to accept.

On the same day, they again supplemented the Troubled Asset Relief Plan with tax expansion, energy provisions, and the Mental Health Parity Act, and passed the Senate vote by 74:25.

On August 2, the US$700 billion asset rescue plan returned to the House of Representatives for a vote and was finally passed by 263 votes to 171.

According to the plan, the Treasury Department can immediately use $250 billion, and if the president proves to Congress that it is necessary, another $100 billion can be used.

In order to release the remaining $350 billion, the Treasury Department must submit a detailed report to Congress on its capital injection plan.

At 2:30 pm that day, George W. Bush signed the bill and it came into effect.

However, for then Fed Chairman Bernanke, this also meant that the Fed finally no longer had to shoulder the sole responsibility of restoring financial stability.

But the crisis continues.

…

Almost at the same time, when the "rescue trio" were racking their brains for a $700 billion asset rescue plan, trying to get it passed by Congress, Barron made another move.

After IC Capital invested $5 billion and acquired 9% of Goldman Sachs Group's shares, Morgan Stanley, one of the only remaining five major investment banks on Wall Street, which has completed its transformation into a bank holding company like Goldman Sachs, also received capital injection.

On July 30, British Fortune Times (BFT) Fund reached an agreement with Morgan Stanley, the second largest securities firm in the United States. BFT Fund will invest in the acquisition of 20% of Morgan Stanley's common stock, thus becoming the largest shareholder of the bank.

The acquisition price will be based on the average stock price of the previous 30 trading days. BFT Fund will use a total of approximately $8.5 billion to purchase Morgan Stanley's newly issued shares.

According to the agreement reached by both parties, after the acquisition of Morgan Stanley's shares is completed, BFT Fund will send one or more directors to Morgan Stanley's board of directors to participate in its operation and management.

It can be said that when Morgan Stanley most needed funds from strategic investors to stabilize market confidence, the $8.5 billion injection of BFT Fund greatly alleviated its critical situation.

In fact, Morgan Stanley's initial target for help was Huaxia.

For this reason, Paulson specifically called Huaxia's senior management, hoping to persuade them to inject capital into Morgan Stanley, but the request was eventually rejected.

At the end of last year, Huaxia's sovereign wealth fund China Investment Corporation invested $5.6 billion in Morgan Stanley in the form of mandatory convertible bonds, and this investment has now suffered heavy losses.

At this time, China Investment Corporation was considering increasing its holdings of 9.99% of Morgan Stanley's shares, but because Huaxia was worried about the safety of this fund if it continued to invest, it eventually suspended the relevant negotiations.

At such a moment, the $8.5 billion in funds from the BFT Fund is of great significance to Morgan Stanley.

Not only this amount of funds can greatly increase the possibility of Morgan Stanley surviving the crisis, but also the fact that the BFT Fund under Barron's name is willing to invest heavily in Morgan Stanley shows that this world-renowned investor has expressed his optimism about Morgan Stanley in this way - verbal praise may be false, but real money investment will never deceive people.

At this moment, investor confidence is the most valuable.

Even during this period, Morgan Stanley CEO John Michael talked about the investment of BFT Fund in almost every public occasion. In addition to the fact that the investment they received was indeed of great significance, it was also to strengthen the market's confidence in Morgan Stanley.