The Henry Kravis Monologues

Michael Flaherty reveals today that "at some point in the last few weeks, bankers say that Citigroup Chief Chuck Prince paid a visit to the office of Henry Kravis... What exactly transpired between King Henry and Prince is anybody’s guess." We do know that KKR is angling to buy Citi's written-down debts: something John Carney calls "very possibly the best story ever". So here's my fantasy of what went down.

"Vanessa, could you get Chuck Prince for me, please? No, not on the phone, in person. Yes, here in my office. I have a great view of Central Park, why would I want to go to his office? He's on the third floor, ferchrissakes! Yes, I know he runs the biggest bank in the world, that's why I want to see him... What's that? Tomorrow? No, tomorrow doesn't work, I want to see him now... He says he can be here in half an hour? Well, OK, but... whaddya mean he's stuck in traffic? What is he, weak? Tell him to get out and walk! He could use the exercise, I tell you...

Chuck! Good to see you. Have a seat... Yes, it's a Rembrandt actually. But listen, I don't have long, I'll get to the point. You've agreed to lend me a very large amount of money, and... no, Chuck, you've agreed to lend me that money, you can't get out of it now. Don't pull that face, Chuck, I'm trying to be constructive here... Would you just let me finish? Yes, I know that all those loans are worth a lot less than face value. That's why I want to buy them off you...

Yes, duh I want all the Blackstone loans as well. You think I don't want inside Schwarzman's business models? No of course I don't care what crab-legs might say, that's your problem... Shall we start with say $50 billion and go from there? At say 94 cents on the dollar? I'll pay you $47 billion for all those loans, you never need to worry about them again... no, you're right, I don't actually have $47 billion, but – here's the really clever part – you're going to lend it to me!

Charles, come back here. Come back. COME BACK. Good. Sit down. Have a glass of wine. '47 Latour, since you ask. Yes, I know that lending me all that money was what caused this whole problem in the first place. But things have changed! Think of your stock price! Work with me here, work with me... everyone's selling your shares because you're sitting on all these loan losses. So you write off a few billion, mark the loans to a bit lower than you'll sell them to me, and you're a hero, the stock goes up, the Dow hits a record high, your board doesn't want to fire you any more... here, have some more wine...

Yes, you'll still have loads of loan exposure to highly-levered private-equity shops. Yes you'll have to take billions of dollars in loan-loss charges. Yes if those loans end up performing then I'll keep all those billions for myself. But I'm tellin' ya, the stock market will love it! You'll make millions on your stock options! Sandy will start returning your phone calls again!

And – here's the best bit – you don't have any choice! Now run along and do as I say. There's a good boy."

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