Chapter 197 Emerging Market Bonds
"The Mexican public debt is 110 million U.S. dollars. Even if Morgan takes it all, it still needs citizens to buy it. You actually want our two companies to take it all. It's crazy." Rockefeller Jr. wiped the sweat from his forehead. When he came to Oak Manor, he never thought that he would get this kind of answer when he talked about this matter with Sheffield.
So much? Sheffield actually didn't know how much debt Mexico had due, but he didn't expect it to be so much. After calculating it this way, it was indeed too much for the two companies to take. Anyway, he didn't have enough cash on his side. If Standard Oil took all the money, he would not agree. The allies also needed to balance it out.
So Sheffield really has no knowledge in this area, and so does Sheffield Associates. It did not disappoint Rockefeller Jr.'s gambling evaluation.
Of course, this is just a minor flaw. If you can't swallow it, then you can't swallow it. It's also possible for two companies to subscribe to part of it at the same time, and then issue the other bonds to citizens for subscribing. This is what Morgan did.
Rockefeller Jr. nodded, thinking that he could finally continue communicating with Sheffield. "The wealth of Morgan and his sons is not that terrible. It's mainly because the allies around them are too powerful. There are also many citizens who worship Morgan's financial methods almost superstitiously, so when something good happens, they think of Morgan first. I don't know how long it will take for you to gain this kind of trust in the bank in California. But you and I, representing two companies, should also create a lot of momentum."
Since he was a financial novice, Sheffield listened obediently to Rockefeller Jr.'s ideas and at the same time explained the relationship between the United Company and the Mexican side. Because Mexico changes its government almost as fast as Sheffield changes his underwear, the United Company's connections on the Mexican side are mainly concentrated in the four states close to Texas, namely Coahuila, Chihuahua, Nuevo León and Tamaulipas, and it has good relations with the local princes.
The relationship between the two sides is nothing more than agriculture, animal husbandry, industry and mining, and of course the Rockefeller family's previous exploration for oil. However, after the oil fields in Texas were discovered, Rockefeller Jr. withdrew the local exploration team, and it is not known whether he has returned yet.
Because the Mexican central government was in chaos and disputes between conservatives and liberals continued, it was very unwise to participate, so the natural joint company was limited to developing relationships with some families in these states.
"I believe they have more connections than the Morgan father and son at least." After listening, Rockefeller Jr. made his own judgment. As expected, people like to make friends with the same people. The Sheffield family's connections in Mexico are similar to his own family's actions in Texas. They do not interact with the central government, but establish relationships directly between the two sides.
"Don't say that. Everyone knows that I love my country more than anyone else." Sheffield saw Rockefeller Jr. making such an evaluation and shook his head three times. "Let's talk business. What are you going to do?"
"First of all, we must ensure that the bonds can be sold and not be wasted." Rockefeller Jr. looked at Sheffield and said, "Only when more people follow you can make money, your voice in the financial industry will increase. This is the most basic thing. Emotions and connections do not exist. If necessary, I must be ready to shoot the client's head off, no matter how much I like him/her. Once you can make the people who buy bonds lose money, the one whose head will be blown off may be you."
It was because of such high risks that Rockefeller Jr. firmly disagreed with the two companies joining forces to take up all the shares. Anything that seems certain is not certain in the financial industry.
"First, we should think about how to sell bonds totaling 110 million US dollars. For many people, the name of Mexico already represents risk. Although you may not think so." Rockefeller Jr. said cautiously.
"Of course I don't think so!" Sheffield replied affirmatively. At least Mexico's mining industry is still very rich, and the collateral can also include railways, factories and mines, and even oil. After all, there are nearly 20 million people, so it's not so bad that it can't pay back the money.
In Oak Manor, the two began to discuss the name of selling these bonds. In fact, the vast majority of citizens of the United States have no financial knowledge at all, and they know nothing.
In order to make bonds more sellable, Standard Oil and Union Corporation are of course two shining golden signs, but more intuitive means can also be used, such as deception.
The Mexican government does not have enough hard currency to repay its dollar debts, but it can issue more pesos to repay its peso debts. This requires packaging and thinking of a nice name. "Developing country" sounds better than "underdeveloped country", and "underdeveloped country" sounds better than "backward country". Economic "recession" is frightening, while "negative growth" is much brighter. "Junk bonds" are ignored, but if they are renamed "high-yield bonds", they can be sold at a high price.
"Bring in Thyssen United, and we will have enough strength on our side." Sheffield thought of this while chatting. It seems that Mexico was a major destination for the capital overflowing from the German Empire in the late 19th century. If German capital is added, I believe it will greatly increase market expectations.
There is also a huge benefit to bringing in German capital, that is, the Germans will fight the British sooner or later anyway, and the strength of the Allies is far inferior to that of the Entente. World War I was a battle fought by the Germans with all their strength, and Germany's defeat was inevitable. By then, the German capital left in Mexico would be harvested, and it would be better for them to harvest it themselves than for others to harvest it.
"That's fine!" Rockefeller Jr. thought about it and realized that the risk would be further reduced, and with the addition of German capital, the chances of making a profit would increase a lot.
The decision was made. There happened to be a Thyssen United Company stationed in Texas, so the matter could be conveyed to the headquarters of Thyssen United Company in Germany through them. One day later, Thyssen United Company in the Ruhr area responded, expressing great interest in the matter. If Standard Oil and Sheffield United Company joined, the three parties could have a good discussion on the matter.
The intensive telegrams spreading news across the Atlantic were no less intense than the ongoing Spanish-American War.
First, a company was registered in Frankfurt to buy Mexican public bonds, and then two new securities related to the regulatory bonds were issued through the company. Subscribe to the company's shares. The beneficiaries of the charity can be anyone. The three parties paid them $12,000 through mysterious investors. However, what they really planned to sell to investors was not stocks, but Mexican bonds in the hands of the new company. In order to obtain permission to issue bonds, the three parties could once again go through investors and German financial institutions to seriously avoid Morgan's ubiquitous observation of the US financial industry.
The alliance would complete a foreign exchange transaction in advance to convert the peso payments on the adjustment bonds into dollars or marks. Everyone knew that the alliance would definitely market the new bonds as dollar bonds, not Mexican government bonds.
As a compromise, the trading memorandum of the new bond added a clause: the credit rating does not reflect the risk of exchange rate fluctuations. With this exemption clause, plus the golden signs of three major companies, Standard Oil, Sheffield United, and Thyssen United, Mexico's public bonds will be transformed into hot bonds.
Sheffield came up with a nice name for this bond, which was called emerging market bonds. Through a series of telegram communications, Rockefeller Jr. and Sheffield met with representatives of Thyssen United Company from Texas at Oak Tree Manor in New Orleans. During this period, news of new steel companies being acquired by U.S. Steel came almost every day.
"If we can get His Majesty the Emperor or the Prime Minister of Prussia to say a word about this move to expand influence in Mexico, I believe the effect will be huge." Sheffield persuaded the representative of Thyssen United Company. "His Majesty the Emperor is the most powerful person in the world today. Unlike the Queen of England who is in name only, as long as His Majesty the Emperor expresses his approval for German capital to enter Mexico, we will almost certainly make a profit."
Do all scams always lean towards authority? Sometimes the existence of academic authority plays this role. The United States does not have this condition. The authority of the financial industry is Morgan. Did Standard Oil and Union Company go to Morgan and tell him that you are very dissatisfied with your actions in the steel industry and now you are going to poach your employees from Mexico?
If the two did this, the financial industry authorities would probably not hesitate to identify the bonds in their hands as junk. Even if Morgan himself could not get them, he would still cheat the two.
Rockefeller Jr. and Sheffield were both looking forward to this matter. William II, aren't you promoting a world strategy? Our two big companies have served dinner. With just one word from you, the world strategy will be realized immediately, at least in Mexico.
"I want to report this to the head office!" The representative of Thyssen United did not refuse directly, but said that he really needed time to explain to the headquarters. He had already seen the operation process and the success rate was still very high as long as he took action.
"Okay!" Rockefeller Jr. and Sheffield looked at each other and agreed. Sure enough, Thyssen United Company quickly responded, "As long as the government bonds are issued, we can try to get the Prime Minister to speak for it."
Standard Oil, Sheffield United, and Thyssen United each shared one-third of Mexican bonds, which were called emerging market bonds. The plan was then entered into the planning stage, and the three parties immediately sent a joint representative to Mexico City.
(End of this chapter)
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