Money Machine

Chapter 14Righting the Ship

There was much anticipation, excitement, and anxiety at SDB as the new year dawned. We had a new board, new chairman, and new president. More changes were expected. But what? How? Who would be affected? Nobody knew. The job to transform SDB fell chiefly on the shoulders of our new president, Jeffrey Williams.

The wheels started coming off almost immediately. In early February, barely a month after we had taken control of the bank, I confronted Williams with a stark question: “Jeff, why did the bank's deposits fall by 3 billion yuan in the month of January?”

I had been reviewing the financial summaries with him and I was alarmed by the sharp drop over the few weeks the bank had been under our control. SDB was severely short of capital, and the weight of its nonperforming loans meant that it had limited capacity to meet a large‐scale withdrawal of deposits by customers. If this trend continued, the bank might literally run out of cash to meet its obligations. And that, of course, was how a bank failed.

Williams was unruffled. The large drop in deposits was a seasonal phenomenon, he explained, typical at the beginning of the year, when economic activity slowed down due to holidays. He assured us that deposits would return in the next month.

They did not. In February, SDB's total deposits continued to drop, and they dropped precipitously. Now 7 billion yuan of deposits had gone out the door since January 1. I was truly worried. I had a long talk with ...