BANKER TO THE WORLD

McGraw-Hill Companies, Inc.

Contents

Chapter One

LEAD BOLDLY AND DECISIVELY

Facing Down the Sandinistas of Nicaragua, The Middle East and Israel, and Getting the Deal Done in China

Bold decision making is the hallmark of leading in crisis situations, and it is a skill that I have had to employ time and again over my 50-year career. In a time of crisis, it is important to recognize the course of action that needs to be taken, and to take that action quickly. The following three examples are cases in which, when faced with challenges, taking bold decisions resulted in positive outcomes.

In Nicaragua in 1980, for example, I had to insist that gun-toting Sandinistas not disrupt our debt negotiations—and was rewarded with a box of cigars from Fidel Castro following the deal's completion. In the early 1990s, I overrode the concerns of some of my colleagues, who were worried about Citibank's position in the Middle East, in order to open a Citibank presence in Israel in the spirit of the Oslo Accords. And in China, I led Citibank through the acquisition of a stake in a local bank that required a decision on my part to go ahead and take responsibility for signing the deal, despite eleventh-hour problems at the signing ceremony.

The lessons illustrated here demonstrate that when faced with challenges, adversity, skeptics, last-minute snafus—and even armed guards—leadership in these types of situations requires making a bold decision about a course of action and then motivating the teams around you to carry that decision through. To lead, you must be proactive and courageous—and willing to take the responsibility if your measures fail.

NICARAGUA

I had spent 20 years working in Latin America and the Caribbean before I was faced with Daniel Ortega and his submachine-gun–toting Sandinistas. I will never forget that experience, and it is an example of the type of leadership that I advocate for anyone who is in a position to lead people and shape outcomes: engaging in bold, direct action; making clear decisions; and then sticking to those decisions without wavering or backing down.

On July 19, 1979, Ortega and his comandantes seized power in Nicaragua. They inherited a national debt of $1.6 billion, including $582 million owed to 115 private banks around the world. We at Citi were one of those banks, and we had a branch in downtown Managua. As a senior vice president in charge of corporate banking in Latin America, I decided to fly down to assess the situation.

The Sandinistas—a new, leftist government that had just taken over from a long- running conservative regime—had been in power just three weeks, and the mood was tense. As our Falcon 20 taxied to a stop at the airport in Managua, we were met by a number of female fatigue-clad soldiers carrying AK-47s. They were to be my escorts for my few-hour visit to the city. I was to fly out the same day, under threat of execution right there on the tarmac if we did not leave on time.

"Your plane will leave on time because otherwise my leader has given me orders to shoot you," one of the Sandinista women said to me by way of greeting upon arrival.

She said the same to our pilot.

I assured her in Spanish that we would be leaving exactly as scheduled. But I would have preferred a slightly more friendly welcome. It happened to be my forty-fourth birthday—August 15, 1979. When it came to the Sandinistas, I didn't have a philosophical bent.

On the way into the city, I could see streets pockmarked by the remnants of heavy fighting. Several years of Sandinista rebellion and the regime's attempts to quell it had left 50,000 people, or 2 percent of the population, dead. For more than a year, National Guard troops had used artillery and aerial bombs to devastate the eastern part of the city while trying to rout the Sandinista rebels, demolishing schools, hospitals, and vital electric and water infrastructure, and killing thousands in Managua alone.

On top of the manmade destruction, the 1972 earthquake had also wreaked terrible devastation on Managua—80 percent of the buildings had been destroyed, and the city center had been reduced to rubble. Seven years later, there was no sign of rebuilding and little evidence of the massive amounts of aid that had poured into the country for reconstruction. The downtown streets were mostly empty save for ruins, and roads led out of town through wastelands to hastily built shantytowns on the perimeter. The toppled president, Anastasio (Tachito) Somoza Debayle—the younger son of Nicaragua's original dictator, who had been assassinated in 1956—had appointed himself head of the earthquake reconstruction committee and had awarded his own companies 80 percent of the building contracts; however, only a fraction of these were ever completed. Downtown Managua was virtually abandoned, as most of the rebuilding that had been done had taken place on land in the south and southeast of the city, which had been owned by Somoza and his associates.

Like most businesses in Managua, our bank branch was closed. As I had requested, I was taken to meet Arturo Cruz, Sr., the head of the Central Bank. Cruz, who had a degree from Georgetown University, had long been working to overthrow the Somoza regime. He had been jailed twice, once following a failed plot in 1947 and again following another such plot in 1954. He had gone into exile in Washington to work for the Inter-American Development Bank, where I had met him. During that period, the FSLN (Frente Sandinista de Liberación National) had approached him and enlisted his support.

When the Sandinistas succeeded in toppling the Somoza regime, Cruz returned to head the Central Bank in Managua—but not before transferring control of the Nicaraguan embassy in Washington to the new Sandinista government. Cruz and some of his associates took up quarters downstairs and left the outgoing Somoza ambassador to settle his affairs on the second floor. (Cruz resigned from the Central Bank post in 1981 to become ambassador to the United States, and he ultimately joined the Contras in 1985 before quitting them as well two years later.) These Sandinistas considered themselves elitists, not guerrillas, and their intent was to bring a new leftist order to Nicaragua that would erase the injustices of the Somoza years for the benefit of the Nicaraguan people.

Cruz assured me during our meeting that Nicaragua was committed to restructuring its international debt obligations. I was pleased to hear it, and so I returned to New York with the good news that the Sandinista government would support debt restructuring talks.

But just a month later, at a speech to the General Assembly of the United Nations in September, Daniel Ortega raised alarms in the international banking community.

"Nicaragua's foreign debt should be assumed by the international community, especially the developed countries and above all those who supported the Somoza regime," he said. This raised fears that the Nicaraguans would do what Fidel Castro had done in Cuba—nationalize U.S. banks and selectively repudiate most of his foreign debt. The Mexicans stepped in to mediate and offered to host debt negotiations in Mexico City. Clearly there were divisions emerging among those who headed the new ruling junta. It seemed that there would only be a short window in which to negotiate.

The Nicaraguan side was led by a young man named Alfredo César Aguirre, just 28 years old. He had studied industrial relations at the University of Texas, so his English was fluent, and he had been a spokesman for the Sandinista movement in New York as well, which meant that he was used to the wheeling-dealing ways of Manhattan. (He later replaced Cruz at the Central Bank and then followed him into the Contra camp as well.) He would be a formidable negotiating counterpart.

In the interim, in December 1979, the Council of the Americas, a U.S.-based business organization made up of private-sector business leaders who were interested in fostering economic development and democracy in the Western Hemisphere, invited three of Nicaragua's new leaders to New York. Some of the members of the board, including myself, took them to see Evita at the Broadway Theater in Times Square. Starring the fantastic Patti LuPone playing Argentina's tragic leader Eva Perón, the musical had opened just a few months before to rave reviews. As the ticketholders took their seats, they all marched in—the three comandantes dressed in fatigues, accompanied by their female "secretaries," also in fatigues. When the Che Guevara character came out on stage, everyone in the theater thought it was a put-on, what with these comandantes in the audience. I had my own "comandante" credentials as well: in those days they used to call me Comandante Gucci, for the loafers with the buckle on the front that I used to wear.

I didn't chair the first two Nicaraguan sessions in Mexico, and those meetings were largely procedural. But by the time we got down to business, to hear the proposals and counterproposals from both sides, I had been asked to head the committee that would be in charge of working out a restructuring plan on behalf of those 115 banks from several dozen countries. My job was to get back the $582 million owed to the banks.

Our first real negotiations took place March 19, 1980, in Managua. I had flown down again—this time without the threat of execution if I overstayed my welcome—and checked into the InterContinental Hotel, which was the only functioning hotel of international standards at that time. The hotel had a jogging route around the hill it was perched upon, and, as an avid runner, I went out early in the morning before negotiations started. As it happened, I injured my Achilles tendon, so it hurt to walk into the meeting room. It was a bad omen: the Sandinistas showed up flanked by guards armed with AK-47s, the type of submachine guns they had first threatened me with at the airport on my visit seven months before.

The Nicaraguans evidently thought that they could get more out of us by scaring us. Yet I refused to negotiate under the threat of force. I insisted that the Sandinistas who were standing at the doors, with their weapons at the ready, be made to exit the room or I would break off negotiations immediately. They complied, but the negotiations over the following three days were tense, held under the threat of the armed soldiers just outside the doors. On the agenda was the first $490 million owed to more than 100 foreign banks.

In order to put our discussions on an even playing field, I had to find neutral territory. I decided on Panama—the Holiday Inn in Panama City. A lot of banks in Latin America, including Citi, ran their Central American operations out of there. It was also easy for the Nicaraguans to travel to. After one more meeting in Mexico in April, that's where we held the final rounds of talks.

The talks were still continuing when the one-year anniversary of the revolution was approaching in July 1980. I returned to Managua on a U.S. government plane that took off from Andrews Air Force Base, representing the private sector as part of an official U.S. delegation. It was led by the U.S. ambassador to the United Nations, Donald McHenry, and included the attorney general for the state of New Mexico, who was a Spanish speaker. President Jimmy Carter was sending us down for the celebrations. He was concerned that Nicaragua would go the way of Cuba, falling into the Soviet orbit in the midst of the cold war. Washington needed to keep up relations, and Carter hoped that he could lure the Sandinistas into the U.S. sphere of influence despite the munitions and support that they had received from Castro. He had authorized a modest assistance package to help the new government. This was, of course, before President Reagan came into office, named Nicaragua one of five countries making up a "confederation of terrorist states" (along with Libya, Cuba, North Korea, and Iran), and authorized the CIA to begin financing for the group that would become the Contras.

It was boiling hot in Managua—over 100 degrees—and people were collapsing from the heat. The longest speech that day was, of course, by Fidel Castro, whose government had allied with the Sandinistas in their overthrow of the Somoza regime and was providing military and technical assistance to the new government. Ortega spoke seemingly as long.

Daniel Ortega—who in 2007 was once again elected president—wanted my help to do him a favor: would I speak with Castro in an effort to improve Cuba's relations with the international financial community?

So we sat down for coffee and his Cuban Cohiba cigars, just Fidel and me, for an hour- long meeting. Cohibas were his preferred cigar, so it was an indulgence to smoke one with him. He told me that he had made a mistake in putting in Che Guevara as governor of Cuba's Central Bank. The old joke going around Latin American circles at the time, which some insisted was true, was that when Fidel assembled his men in the aftermath of the takeover of Havana and said, "Who here is an economista?" Guevara misunderstood the question and thought Castro had asked, "Who here is a comunista?" Che raised his hand.

Castro wanted advice on how to restructure Cuba's foreign debt. He also said that he had made a mistake by leaving the International Monetary Fund, the World Bank, and the Inter-American Development Bank, and that he had warned Ortega not to follow the same route so as not to cut himself off from international funding.

But what could Cuba do now? U.S. banks had been nationalized when Fidel took power, but Cuba still owed outstanding debts to Canadian and European banks—mainly Spanish ones. The Soviets weren't going to help. He needed debt relief, which is when banks agree to forgive or restructure debt, similar to when a credit card borrower negotiates for lower payments.

I advised Castro that he had to go about it in an organized manner, with representatives of the banks involved, in order to ensure the country's reputation in international capital markets. It was then that Castro bet me that I wouldn't be able to pull off a restructuring deal for the Nicaraguans any time soon. He gave a date.

I bet him that I would.

He said that if I succeeded, he would send me a box of Cohibas, his personal cigars.

Later that year, we finalized the deal with the Nicaraguans. One night, after months of tense negotiations that debated not just principal and interest rates, but also principles and ideology, we had a breakthrough. Everyone assembled in the suite of our head of Central American operations, who was temporarily working out of Panama because of an ongoing civil war in Guatemala, and was snarling and cranky after a long day. For comic relief, the representative from Merrill Lynch began telling jokes. Everyone started to laugh. When we finally stopped, someone said, "Hey, this is the deal we have on the table. Let's just do it." So the tired group reached agreement right there. The deal was done.

For the first time in any rescheduling in recent memory, we agreed to defer both interest and principal payments on the $582 million and to stretch out the repayment of interest and principal over a 12-year period. Normally, a rescheduling period would be 7 years. At the signing ceremony in Panama City, the Nicaraguans signed the agreement with a gold Cross pen that their lawyer had embossed with the words:

Firmar me harás

Pagar jamás

This means: "You can make me sign, but you'll never make me pay." It ultimately turned out to be true—the Nicaraguans subsequently did not live up to their agreement. After the signing that evening, however, they celebrated heartily by smoking cigars.

On that occasion, I was reminded of Fidel's promise. But I never heard from him.

Until years later. In February 1986, an article titled "Field Marshal of the Debt Crisis" appeared in Institutional Investor magazine. In recounting my dealings with the Nicaraguans as well as other workouts that I had engineered after that time in other countries of Latin America, the article mentioned Fidel's bet.

A month later, I received a call from Cuba's ambassador to the United Nations. He had a box of Cohibas to deliver to me, courtesy of Fidel Castro. He made an appointment to see me in my fifth-floor office on Park Avenue. I asked my lawyer, John Millard, who had been my lawyer in the negotiations and spoke fluent Spanish, to sit in. I didn't know what to expect. When the ambassador arrived, accompanied by an assistant who I was sure was an intelligence agent, he was carrying the cigars under his arm. As he handed them to me, the ambassador said confidently, "Fidel always keeps his word."

In a sense, this box of cigars represented a kind of recognition for the boldness to take a leadership role in trying to bring Nicaragua back into the international banking fold and for standing up against armed Sandinista guards and insisting on a neutral negotiating atmosphere.

THE MIDDLE EAST AND ISRAEL

Sometimes you have to make a bold decision that goes against all advice—with the conviction that it is the right thing to do and the hope that all will work out in the end.

The story begins on October 31, 1994, when I attended the Casablanca Summit, otherwise known as the Middle East/North Africa Economic Summit, in Casablanca, Morocco, sponsored by the World Economic Forum and the Council on Foreign Relations. A number of us attending the conference went to a breakfast with Shimon Peres, who had been Israel's prime minister in the 1980s and would become prime minister again the following year, but who at the time was foreign minister. Peres had just engineered the Oslo Accords between his boss, Yitzhak Rabin, Israel's prime minister, and Yasser Arafat of the Palestine Liberation Organization (the first direct agreement between Israel and the PLO), which had started as a secret dialogue between the two men. The mood in the region was optimistic about the opportunities for peace and for economic development and business expansion opportunities. So at the breakfast in Casablanca, I mentioned to Peres that I was interested in bringing Citibank to Israel.

I had made my first trip to Israel in the spring of 1992, as part of the Group of Thirty, which is an organization made up of academics, central bankers, finance ministers, and fellow financiers who analyze economic trends and global financial markets and institutions. We had traveled around the country, hosted by the governor of the Bank of Israel, Jacob Frenkel, whose efforts to hold the meeting I had supported. I got a feel for the business opportunities that could be available to Citibank there if only we had a branch.

(Continues...)

Excerpted from BANKER TO THE WORLDby WILLIAM R. RHODES Copyright © 2011 by William R. Rhodes. Excerpted by permission of McGraw-Hill Companies, Inc.. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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