January 15, 1998
– Head Office of the Long-Term Credit Bank of Japan, Chuo Ward, Tokyo.
Around a long conference table, John Porter and the staff of Eldorado Fund's Japan branch sat across from officials of the Long-Term Credit Bank.
While the bank officials looked visibly tense, Branch Manager Porter wore a relaxed expression as he began to speak.
"Shall we take a look at the pricing?"
Executive Director Akema Jun, who was seated across from him, adjusted his gold-rimmed
glasses with one hand and opened the folder in front of him.
The moment he saw the numbers printed on the documents, his face contorted in disbelief.
[ Book Value Total: ¥327,089,460,000
Bond Purchase Price: ¥114,820,290,000 ]
Lifting his head, Executive Director Akema stared coldly at the man sitting across from him.
Porter maintained his leisurely demeanor, a faint smile tugging at the corners of his mouth.
Akema was stunned by the audacity—how could someone put forward such figures with such
shameless confidence? Swallowing the fury rising inside him, he spoke in a tightly controlled
voice.
"What on earth is this?"
"As you can see, it's the bond purchase price our team has assessed."
"So you're saying this isn't a mistake? That this is the correct figure?"
"That's correct."
"Are you trying to make a mockery of us?!"
Raising his voice in anger, Akema drew the attention of the bank officials seated beside him.
They glanced at the document and, upon seeing the figures, gasped in shock.
"This can't be…"
"Unbelievable."
A ripple of unease spread through the room. With a cold glare, Akema addressed Porter once
again.
"You're slashing the value of bonds worth over 300 billion yen to less than half. You're seriously saying this is a fair calculation?"
"This offer is less than 35% of the book value. This is absolutely unacceptable."
Okada Hiroyuki, the section chief overseeing the practical matters, joined in, his face flushed red with anger.
Even as several pairs of eyes glared at him with the intensity one might reserve for a brazen thief, Porter calmly lifted the teacup in front of him, took a sip of green tea, and set it down gently.
Then, looking around at the furious faces of Executive Director Akema and the other bank
officials, he spoke in a calm voice.
"I was quite surprised by the numbers myself after the due diligence. But once I reviewed the
details, it all made sense. Considering this is our first deal with the Long-Term Credit Bank of Japan, I offered the highest price I could justify."
Akema let out a scoff of disbelief.
"You're saying this is generous?"
"That's correct."
With a stern expression, Akema slammed his palm down hard on the table.
"You're making a mockery of us!"
The atmosphere in the conference room instantly turned ice cold.
Yet Porter, still smiling faintly, responded in fluent Japanese.
"Please, let's stay calm. I'll explain why we arrived at this purchase price in a way that makes sense."
Akema crossed his arms and leaned back in his chair, gesturing as if to say, "Go ahead, let's hear it."
"Let's see what kind of ridiculous calculation gave you that number."
Porter turned his head slightly and nodded to Ryder, who had accompanied him.
"Please explain."
"Yes, sir."
Ryder, a former Lehman Brothers executive with years of experience working in Japan, opened a file and slid it across the table toward Akema. Speaking in fluent Japanese, he began.
"As you can see, we evaluated the bonds by classifying them into three grades: A, B, and C.
Unfortunately, of the 57 bonds included in this bulk sale, not a single one qualified as Grade A, which signifies high recovery potential. The majority were rated the lowest grade—Grade C."
Akema pulled the file toward him and began flipping through the pages, scanning the evaluation forms for each of the 57 bonds.
His face turned crimson as he discovered that more than half of the bonds had been assigned a value of zero yen.
Unable to contain his anger, Chief Okada shouted from beside him.
"You're saying these bonds are worth zero yen ? Are you taking us for fools?!"
"I understand this outcome may fall short of your expectations, and I sympathize. But I would appreciate it if you refrained from using excessive language."
Porter's calm voice carried weight, effectively silencing the room.
"You…!"
"That's enough," Akema said, cutting him off.
Chief Okada, fuming with rage, was about to fire back when Executive Director Akema stopped him with a raised hand.
Staring intently at Porter across the table, Akema spoke in a calm, heavy voice.
"Let's hear the rest of what they have to say."
When Okada reluctantly held his tongue, Ryder resumed his explanation with a businesslike tone.
"Let me reiterate to avoid any misunderstanding—these bond prices were determined through
objective evaluations."
Okada nearly blurted out that there was nothing rational about these prices, but he held his tongue with effort.
"For instance, take Bond No. 12. The borrowing company is already in a state of capital erosion and has lost its repayment capacity. Yet instead of forcibly recovering the debt or writing off the loss, the loan terms were simply adjusted to collect interest only."
Catching the flicker of hesitation on Okada's face, Ryder pressed on calmly, a slight smile
flickering beneath his composed demeanor.
"The repayment term was extended to twenty years, and even the adjusted interest rate is well
below market standards."
"That's because—"
"Even with such generous terms, the company still shows little likelihood of repaying the loan. That's why we assessed the bond's value as zero."
Ryder had deliberately emphasized the phrase "generous terms," and the bank officials, including Okada, shifted their gaze uncomfortably.
Observing this from the side, Porter sipped his green tea with a faint, sharp smile playing on his lips.
"We understand the economic downturn has made things difficult," Okada argued, trying to mask his flustered tone, "but the company still exists, and the factory land and buildings are pledged as collateral. How can the valuation be zero yen?"
He was clearly on the defensive now, scrambling to make a case.
Ryder responded with calm predictability, as though anticipating this line of argument.
"You're right. However, you're also aware that pursuing repayment or seizing and liquidating collateral involves significant time and cost."
"But in the end, selling the collateral brings in money, doesn't it?!"
Okada countered without backing down.
Ryder merely waved his hand lightly.
"That's not necessarily the case. Even if you invest all those resources into recovering the bond, there's no guarantee of success. Especially now—after the bubble burst—property values have plummeted. You might even end up in the red."
"..."
"These are the reasons behind the pricing you see in the report."
The airtight logic left Okada feeling cornered. As frustrating as it was, he couldn't find a way to refute the argument—but he refused to concede so easily.
"Even if everything you said is true, interest payments are still coming in. That alone means the bond can't be worth zero, can it?"
At that point, Porter stepped in to answer, cutting in before Ryder could respond.
"I'll take that question myself."
He turned and calmly locked eyes with Executive Director Akema, who had remained silent for a while now.
"Besides the loan we discussed earlier, we found multiple other bonds that had been restructured under similarly absurd terms. And when we dug a little deeper, we discovered that the interest payments on some of these loans were being funded through credit extended by one of your affiliated card companies."
Akema's face twitched with visible surprise.
"Don't you think that's a bit too convenient to be a coincidence?"
Porter asked, his eyes narrowing slightly as he smiled faintly.
"Are you implying we're engaging in accounting fraud?!"
Akema snapped, glaring at him.
Porter immediately backed off a step.
"I'm only describing the situation as we saw it. If my comment came across as offensive, then I apologize."
Though Akema had plenty to be defensive about, he could only blush and remain silent.
"In any case," Porter continued, "as we've explained, the bond purchase price we offered was derived from an objective evaluation."
Akema then pointed to a section of the bond list spread out on the table.
"Fine, I'll concede the hard-to-recover bonds. But what about this one—this building in Roppongi? The collateral value is clearly substantial. Why is that marked as zero yen?"
His tone was sharp, clearly challenging.
But Porter remained unfazed and replied with composure.
"Due to the downturn in the real estate market, property prices have indeed dropped significantly. That said, a commercial building in central Tokyo like the one in Roppongi certainly holds considerable value."
Akema, who had just raised his chin with a triumphant look, scowled at what followed.
"However, I'm sure you're aware that not all creditors are treated equally. The collateral value is assessed differently depending on lien priority."
"...!"
"The Roppongi building you mentioned—along with several other high-value properties—was not secured with a first lien. Most were registered as second or even third liens. Which means, even if you seize and sell the property, the senior lienholders get paid first. You may walk away with nothing."
At that point, Okada interjected with a rebuttal.
"Even if we're lower on the lien order, these properties are in prime locations like Roppongi and Ginza. With a sale, we should still be able to recover most of the loan."
"I agree—that's possible. But only if the properties can be sold under normal circumstances."
"...?"
Okada frowned in confusion, prompting Porter to continue.
"We found that many of the high-value properties you hold as collateral have serious issues with their current owners."
"What do you mean by that?"
Porter leaned back in his chair and cast a sharp, piercing gaze across the table.
"They may look like legitimate real estate development firms on paper, but in reality, they're owned by the yakuza. Which means, practically speaking, you can't exercise any legal rights over those assets."
Chief Okada was struck speechless.
They had assumed that, being a foreign fund, Eldorado would be unfamiliar with the ins and outs of Japan's internal affairs—and so they had slipped in a pile of problematic bonds to offload quietly.
But rather than being fooled, Porter had not only seen through the trap but had accurately
pinpointed every hidden landmine. Even Akema, though outwardly composed, let out a subtle sigh of dismay.
Their original plan—to dump toxic assets on Eldorado—was falling apart completely.
Still, Akema wasn't ready to give up so easily.
"Fine. Let's say the problematic ones are as you say. But there are still plenty of bonds with solid collateral, like the Rockefeller Center, aren't there?"
"Exactly," Porter replied. "Those relatively better-quality bonds are the reason we were able to offer even this much."
"Even so, this seems like an excessive discount."
Seeing Akema's reluctant, dissatisfied expression, Porter responded in a low, suggestive voice.
"With the Ministry of Finance audit coming up, wouldn't it be in the Long-Term Credit Bank's best interest to demonstrate that it's actively dealing with its bad debts by clearing out the hardest-to-recover bonds? And while you're at it, this would also be the perfect opportunity to discreetly remove those liabilities that would become problematic if exposed."
"Hmm."
Akema's mouth went dry. It was clear now that the other party had figured out their entire
strategy.
Still, as Porter pointed out, with the Ministry audit looming, they needed to get rid of the
"stinking" bonds as soon as possible. So it didn't take him long to make up his mind.
"Very well. But I have one condition."
"Let's hear it."
Akema cast one last wary glance at Porter's calm, confident face and spoke.
"Even if this is a bulk sale, selling at too low a price might cause issues later. I'd like you to
inflate the handling costs slightly and include that in the purchase price. Would you agree to
that?"
It was a cover-up—a way to quietly pad the numbers and make it appear as though they'd sold the distressed bonds at a higher price than they actually had.
From Eldorado's perspective, they had nothing to lose, so Porter readily agreed.
"Very well. Shall we add, say… an extra billion yen?"
Akema nodded, then followed up with one final request.
"I trust you'll keep the details of this bulk sale confidential."
"You have my word."
Porter's gleaming white teeth flashed in a wide smile.
And just like that, Eldorado Fund acquired bonds with a total book value exceeding 327 billion yen—for a fraction of their face value.