mchenry-crisis.org Chapter 208 Vulture Matrix
Chapter 208 Vulture Matrix
(I apologize that this chapter cannot be released on time today. It was originally planned for this evening, but I discovered many flaws then, so I've been fixing them and can only release it now. Regarding the suggestion from many readers to resume double updates, firstly, due to limited energy, I simply cannot continue with double updates as before; secondly, to ensure rigor, many parts of this story require extensive research, and I don't want to rush and compromise quality, resulting in a slow output. Even so, flaws will still exist, which requires readers' reminders. In conclusion, double updates are unlikely in the near future, and I hope you will understand.)
Mid-November 1989.
Bunkyo-ku, Tokyo.
The main house of Saionji Temple, on the second basement floor.
The ventilation ducts of the constant temperature system emit a very low noise. Warm and dry airflow is continuously poured into the room, keeping out the biting cold rain of early winter above ground.
The lights in the study were deliberately dimmed. The brass wall lamps emitted a dark yellow glow, illuminating the Persian handmade wool carpet laid on the floor.
Executive Director Endo sat upright on a single leather sofa in the guest area.
The head butler, who oversees the vast financial network of the Saionji Group, is dressed today in a sharply tailored dark custom-made suit. His hands are resting flat on his knees, his knuckles exerting a slight pressure, his fingertips pressing against the fabric of his suit trousers.
"Young Miss, Master of the Family."
Endo adjusted his gold-rimmed glasses and began his report in a calm tone.
"According to the latest encrypted telegram sent back by Mr. Frank, Mr. Shimomura's 'Ghost' high-frequency order splitting algorithm is currently running extremely smoothly on the Chicago Mercantile Exchange and the Singapore International Monetary Exchange."
"These billions of dollars in short-selling capital have been automatically divided into several or even a dozen scattered orders by the program. In addition, the timing of these orders is completely irregular, so those tiny put option buy orders have actually been completely mixed into the daily trading data pool of retail investors around the world."
"That's why the risk control radars of major Wall Street investment banks have not been triggered so far. Our overseas position building operations have not left any traceable record."
Endo opened the black briefcase beside him and took out a list of domestic assets.
"As for the domestic situation, the real estate department has successfully sold off most of the marginal plots and odd-numbered lots in the first tier of developments. The funds raised have been entirely converted into Japanese short-term government bonds and physical gold, and deposited in the underground vault of Daiwa Bank. It can be said that the group's domestic cash flow is currently absolutely safe."
Shuichi Saionji, wearing a soft, dark gray cashmere cardigan, sat upright behind a large rosewood desk.
After listening to Endo's report, Shuichi nodded slightly.
But his brows did not completely relax.
"Endo, the overseas position building went smoothly, which is indeed a good thing." Shuichi's voice was deep. "If the economic bubble bursts as expected next year, the profits we make on Wall Street, thanks to the maximum leverage in our overseas options account, will definitely be an astronomical figure of hundreds of billions of dollars."
He turned his head and looked at the wall on the side of the study. A huge map of Japan's administrative districts hung on the wall.
"According to the plan, this money will be transferred back to China, and once domestic asset prices hit rock bottom, it will be used to acquire a large number of bankrupt core industrial and financial institutions..."
Shuichi's brows gradually furrowed.
"However, the bureaucrats in the Ministry of Finance are not fools. Those people in Kasumigaseki have always been extremely protective of domestic assets. They keep a close eye on the foreign exchange inflows every day, fearing that even a little bit of the country's core technology or vital enterprises might fall into the hands of foreign capital."
"Think about it, if the entire country were to fall into a situation of widespread corporate bankruptcies, we would have such a huge amount of US dollars in our hands. If we were to go back to Japan and acquire those cheap core industries and financial institutions on a large scale, such a merger by a single conglomerate would definitely touch the most sensitive nerve of the Ministry of Finance and trigger Japan's Anti-Monopoly Law."
"At that time, the Ministry of Finance will definitely launch extremely strict foreign exchange inspections. They will use all kinds of administrative orders to set up all kinds of insurmountable barriers. In the eyes of those bureaucrats, they would rather watch companies go bankrupt and workers become homeless than allow a family to have control over half of Japan."
The study fell silent.
The subtle noise of the constant-temperature system was somewhat noticeable in the stillness.
Satsuki Saionji, who was sitting in the shadows behind Xiu, put down her bone china teacup upon hearing this.
Today she wore a casual, off-white turtleneck cashmere sweater. Her long hair was simply pulled back with a dark blue tortoiseshell hairpin. Her expression was calm. Her clear, black and white eyes were quietly watching Endo and her father ahead.
Faced with the macro risks raised by Shuichi, Satsuki did not immediately respond.
She stood up from the tatami mat and walked straight to the large whiteboard on one side of the study.
In the center of the whiteboard, she drew a complex diagram of offshore equity topology. Intertwined lines and radiating arrows connected several regions representing offshore tax havens.
"Father, your concerns are valid."
Satsuki's clear voice spread gently through the warm study.
"In this country, if you act too ostentatiously, you will definitely attract joint suppression from the administrative departments. Therefore, the Saionji family absolutely cannot directly use their own name to make acquisitions."
At the very top of the topology diagram, she wrote three striking English letters.
[SPV (Special Purpose Entity)]
The pen tip drew a horizontal line below the letter.
"This is the first step in our response: establishing an SPV matrix."
Satsuki turned around, her gaze fixed directly on Executive Director Endo.
"Executive Director Endo, take advantage of the next few months of downtime and utilize our overseas legal team to register hundreds of special purpose entities that are not affiliated with each other in places like the Cayman Islands, the British Virgin Islands, and Luxembourg."
"Then, through complex cross-shareholding designs, coupled with layers of nested anonymous trust holdings, we dispersed all the huge sums of money we earned overseas, dividing them into countless seemingly harmless small amounts."
She tapped the whiteboard gently with the end of a marker.
"Remember, absolute segregation of shares must be established at the legal level. All legal representatives must be replaced by nominees holding Swiss or Liechtenstein passports."
"In this way, from the perspective of the Ministry of Finance and the Japanese financial community in the future, those buying assets back into Japan will be hundreds of independent foreign funds from Europe and the United States. On the surface, they will appear to be strangers to each other, each making their own investments."
Satsuki's lips curled up slightly, revealing a deceptively charming smile.
"From a legal perspective, this structure can completely bypass the Ministry of Finance's anti-monopoly review. Because the bureaucrats simply cannot find out who the ultimate beneficiaries of the funds are, they naturally cannot use the anti-monopoly law to stop those seemingly scattered foreign acquisitions in the free market."
Upon hearing these words, Executive Director Endo broke out in a cold sweat.
He quickly opened his black leather notebook, unscrewed the pen, and wrote down the massive and complicated offshore instructions word by word.
"After resolving the issue of the channel for capital repatriation."
Satsuki turned around. On the other side of the whiteboard, she wrote down the second core issue.
What to buy?
"Once the economy collapses, the market will be full of non-performing assets from bankruptcies and liquidations. No matter how much capital the Saionji family has, we absolutely cannot take over those illiquid, dilapidated real estate projects and sunset industries."
The pen tip moved across the whiteboard again.
She wrote down three capital letters: [ASR (Asset Screening Rules)].
Next, five English letters are listed vertically below.
【C, T, R, P, S】.
"CTRPS model".
Satsuki spoke in a calm tone, but Endo's pen was already running out of space to take notes.
"C, Cash creation. This means the target company must have the ability to generate stable free cash flow during an economic downturn. We are looking for companies that, despite being heavily indebted, still have healthy core businesses and can continuously provide cash inflows."
She glanced at Executive Director Endo and issued specific quantitative targets.
"In subsequent financial screening, if the target company's EBITDA (earnings before interest, taxes, depreciation, and amortization) to interest-bearing liabilities ratio is less than 0.05%, it will be directly included in the high-risk exclusion list. Unless, it meets the next metric."
"T stands for Tech core, core technology."
Satsuki tapped the whiteboard lightly with the end of her marker.
"Companies with underlying patents and technological barriers should be given priority. For example, semiconductor material manufacturers that have mastered cutting-edge manufacturing processes, or heavy industrial bases with precision instrument manufacturing capabilities. As long as the technology has irreplaceable unicorn potential, no matter how bad its financial statements are, it can bypass cash flow review and directly enter the priority watch pool."
"R, Restructuring possible."
"Labor unions and lifetime employment systems in Japanese companies are often a big problem. The target company's labor union must be weak, or its existing rigid management can be easily stripped away and replaced. We don't need those messy situations with internal factions that are difficult to manage."
"After taking over, we must ensure that the company can quickly restore positive cash flow within six to eighteen months through debt-to-equity swaps and the disposal of non-performing assets."
Executive Director Endo wrote furiously, recording these specific execution cycles word for word in a black leather notebook.
"P, Price threshold."
"The acquisition price must be in a panic-driven, extremely undervalued range. We only buy when the target company is on the verge of bankruptcy and its price has fallen to 40% to 60% of its 'forced sale' range. In other words, we must drive the price below its book value to ensure that every penny we pay is a bargain."
Finally, S stands for Strategic fit.
"The target company's business scope must perfectly align with the Saionji Group's overall future development plan. For example..."
Satsuki slightly lowered her wrist and lightly touched the edge of the whiteboard with the tip of her pen.
"Those long-established commercial banks that had nationwide branches but were completely dragged down by non-performing loans and bad debts."
She casually tossed the marker into the pen slot under the whiteboard.
"Only core Japanese companies that simultaneously meet these five quantitative indicators are eligible to be included in the Saionji family's final acquisition list."
The air in the study seemed to have become somewhat thin.
Xiu sat upright behind the large rosewood desk. His gaze shifted between the rows of English letters and quantitative indicators on the whiteboard, a hint of confusion appearing in his eyes.
As an old-school businessperson, he wasn't entirely proficient in these cold, hard modern financial terms. But he could still clearly sense the chilling ruthlessness behind this model. It completely abandoned the "personal connections" and "factional ties" that were valued in traditional Japanese corporate mergers, turning into a pure, capital-efficiency-driven harvesting machine.
Endo stopped writing with his pen. He lowered his head, his gaze sweeping back and forth over the model architecture he had just recorded in his notebook.
"This...is truly a genius idea." The head steward, who had spent many years in the financial field, couldn't help but exclaim sincerely. "Quantifying financial health, technological barriers, and strategic restructuring potential—this screening mechanism perfectly avoids the bad debt risk of blindly buying at the bottom. As long as we strictly adhere to these five indicators, every asset we acquire will be a high-quality cash-generating machine. It's practically flawless in terms of business logic."
He pushed up his gold-rimmed glasses and turned his gaze back to the whiteboard. After staring at it for a moment, Endo suddenly frowned.
"However, young lady."
Endo's voice carried a hint of doubt.
"This plan will encounter a major obstacle in its actual implementation. Even if the target company's finances are in dire straits and it is on the verge of bankruptcy, its original shareholders will absolutely hold on to their shares. As you know, traditional family businesses place great importance on controlling stakes. If we use those overseas shell companies to launch a hostile takeover, we will definitely face strong resistance from the other party's board of directors. We might even get bogged down in a protracted battle for control, which would defeat the purpose of our rapid takeover."
Satsuki listened quietly to Endo's concerns.
Her lips curled slightly upward, revealing a cold, emotionless smile.
"That's right, Executive Director Endo, your concerns are spot on. Fighting for shares with those old shareholders who are clinging to family honor will inevitably lead to a long and arduous struggle."
She held the marker, her wrist slightly slouch. At the very bottom of the whiteboard, she wrote the last English abbreviation.
【NPL (Non-Performing Loans)】
"Since they value controlling stake more than their own lives, we can simply avoid touching it."
Satsuki explained to the two the most common practices Wall Street uses when dealing with bankrupt companies.
"During periods of large-scale corporate bankruptcies, equity is the cheapest piece of paper. Because in the order of priority for repayment in bankruptcy liquidation, it is always last in line."
"We don't need to acquire those annoying shares at all."
"What we want to acquire are the debts that can directly cut off their breathing."
"When the economy collapses and businesses default on a large scale, major banks will be eager to sell off non-performing assets in order to cover up their losses. We can use pre-registered shell companies to buy up these target companies' 'non-performing claims' in bulk from major banks or government-established recycling agencies at extremely low prices."
"As long as we hold the debt, we are their biggest creditors and hold their life and death in our hands."
Satsuki turned around, her gaze fixed on Endo and Shuichi.
"At that time, we can apply to the court for compulsory bankruptcy liquidation at any time. Faced with the pressure of bankruptcy liquidation, the target company's board of directors will have no choice. At that point, it will be a logical step to ask the other party to carry out 'debt-to-equity swap'."
"Through this debt conversion method, we don't need to fight with them for anything. We can directly and completely dilute the original shareholders' equity, and even exclude them from management. In this way, we can achieve absolute control over the core assets."
As soon as he finished speaking, the study fell into a long, heavy silence once again.
Endo and Shuichi sat motionless in their seats. Their breathing became extremely heavy, and their heartbeats were noticeable in the quiet room. Fine beads of sweat even appeared on their foreheads.
The two finally saw through this grand, epoch-making plan. They used overseas companies to conceal their identities, relied on screening criteria to identify key targets, and ultimately used debt-to-equity swaps to achieve final control.
This acquisition method, which transcends traditional business logic, completely avoids the rigid defensive system built by traditional Japanese zaibatsu relying on bank loans and cross-shareholdings.
Satsuki ignored their shock.
She walked back to the large rosewood desk. She opened the drawer, took out a top-secret file sealed with red wax, and laid it flat on the table.
"In fact, the CTRPS model that I just wrote on the whiteboard has been secretly simulated by the SIS think tank team in the underground server room for a full six months."
Satsuki's voice sounded unusually cold in the underground chamber.
"This 'List of High-Risk Core Companies' is the final result of screening tens of thousands of companies across Japan over the past six months."
"The names on the list now have stellar financial reports and are enjoying endless prestige in the Marunouchi building."
"But their leverage ratios have been stretched to the physical limit. When the economic bubble bursts, their books will be flooded with hundreds of billions, or even trillions, of bad debts."
"That will be the time for us to enter the market."