National Tide 1980.

On February 11, 1990, the well-known American investment bank Lehman Brothers suddenly released a short-selling report targeting the EIE Group.

The 69-page report details Lehman Brothers' research accusing EIE Group of financial fraud.

The report identifies the following key offenses involving EIE:
First, they deliberately concealed the true scale of their debt and committed fraud in the profit data of their main business of selling electronic products.

Second, they excessively exaggerated the value of the real estate acquired overseas, thereby inflating the stock price of their listed companies to assume more debt.

Third, although EIE Group has an extremely high valuation on the surface, its net assets have grown at an astonishing rate in recent years through mergers and acquisitions.

However, given the enormous and difficult-to-accurate debt scale of the purchased assets, and the fact that the Bank of Japan has adjusted its monetary policy and frequently raised interest rates in recent years, leading to a further increase in financial costs, the fundamentals have undergone significant changes.

This could very well lead to EIE's operating profits being unable to cover debt costs, resulting in a decline in net assets, or even insolvency.

Lehman Brothers believed that the only way for EIE to solve its problems was to sell assets to pay off its debts, so EIE still had room to fall, even if it fell below book value.

This report was like a bombshell, causing a huge uproar in the market.

Many investors who bought EIE stock exclaimed that they had been cheated. Already blinded by losses due to the stock price decline, they immediately found a reason for their investment losses, accusing EIE of being a fraudulent company and demanding that market regulators take emergency measures against EIE and compensate them for their investment losses.

Although the EIE immediately issued a statement denying the allegations, claiming that the claim of "unbearable debt costs" was "baseless" and a result of Lehman Brothers' lack of understanding of business operations.

EIE International even launched a strong counterattack against the allegations of Lehman Brothers' actions, expressing shock at the report they issued, calling it a "malicious combination of selective misinformation and outdated, baseless, and unreliable accusations," and vowing to pursue legal action against Lehman Brothers and demand compensation for the damage to EIE's reputation.

However, this angry rebuttal lacked any supporting evidence and was merely a formality, ultimately proving ineffective.

Lehman Brothers, a well-known American investment bank, not only ignored this, but the investors who held the stock also did not buy it, which still led to a panic sell-off of EIE International's stock.

At this point, the market was already in the worst phase of the stock market crash, so how could EIE's stock price possibly perform well?

Lehman Brothers' precise attack exacerbated their already dire situation, resulting in a decline far exceeding that of other companies in the same industry.

In order to stabilize its stock price, EIE International had to suspend trading temporarily and then announce that it would repurchase some of the company's shares.

This finally stabilized the share price at the 20,000 yen mark, somewhat alleviating the panic among stock investors.

Even more fortunately, the market quickly rebounded, which helped EIE recover some of its losses and further stabilize its shaky stock price.

Even so, the situation remains far from optimistic. After all, Lehman Brothers is still lurking, and this attack is aimed right at their core. It cannot be said that the risk of further collapse has been eliminated.

Therefore, on Wednesday afternoon, February 21, 1990, after the market had rebounded for the third consecutive day, the market rebounded.

On the 27th floor of the Toranomon Ryouka Building in Tokyo, in the conference room of the EIE Group, all managers at the department head level and above, led by President Harunori Takahashi, gathered for an emergency meeting to discuss how to deal with the current severe situation.

President Harunori Takahashi spoke first, “As everyone should know, Lehman Brothers has targeted our group. Those Americans are truly shameless, resorting to any means to short sell. They deliberately released this short-selling report when the market was at its most dangerous and we were facing our greatest difficulties, in order to profit from it. It is regrettable that, to date, the market value of our EIE has evaporated by about 2.8 trillion yen from its peak. Our flesh and blood have been devoured by those greedy bastards, and they have succeeded.”

"The good news is that our stock buyback has temporarily stabilized the selling pressure from shareholders, and the market is gradually recovering and starting to rebound. But the bad news is that Lehman Brothers will not be satisfied easily. They are still secretly looking for opportunities like rats, hoping to cause more panic and profit from it."

"In short, if we want to truly stabilize the situation and restore the confidence of our shareholders, we need to quickly raise the stock price to a reasonable level. However, we are in a dilemma. We lack funds, and the funds we currently have are only enough to barely meet the share repurchase targets announced, but it will be difficult to achieve more. Now we need everyone to work together to think of ways to raise funds as much as possible in order to overcome this difficulty."

As he finished speaking, the head of the sales department spoke first, "A company relies on its brand. If the brand collapses, it will trigger a domino effect. The president is right; we must stabilize the stock price no matter what. Otherwise, our group's normal operations will be disrupted. As for what our sales department can do, besides trying to collect some accounts receivable, we might be able to talk to suppliers to take measures such as temporary postponement or reducing some payable amounts. I think we should be able to raise about 40 billion yen this week. However, this situation is unsustainable. I'm worried that if these funds are misappropriated for more than two months, it will cause trouble. It will not only damage our cooperation with related companies but also affect the company's main business operations."

Harunori Takahashi nodded in satisfaction at his subordinate's positive feedback.

But it's clear that he's no longer concerned about the risks involved.

“Just do as you say, don’t worry about anything else. No matter what, we have to get the stock price up first. The current stock price has fallen below the trillion yen mark and is almost at a price-to-book ratio of one, which is an insult to a first-class company like ours with growth potential. We must at least maintain a market capitalization of 1.5 trillion yen and keep the stock price above a price-to-earnings ratio of two, otherwise it will damage the reputation of our group.”

He then looked around the room again, "What about the others? Do they have any suggestions? We need more funding."

However, for the other cadres, it was clear that they had run out of ideas.

The group of "donkeys" either looked at each other blankly or lowered their heads in silence, making the atmosphere in the room suddenly heavy.

Not a single person dared to meet the gaze of Harunori Takahashi, who was surveying the entire room. On the contrary, their eyes revealed a bewildered helplessness and a retreating, evasive look.

However, just as Harunori Takahashi's expression grew increasingly gloomy, the nearly sixty-year-old managing director, a company veteran, spoke up.

"I have a question. Are the financing channels that our group relies on completely useless at times like this? What is the attitude of banks and trust companies? Don't we have a good relationship with Changyin Bank? They won't refuse to help us at a time like this, will they?"

This time, it was Takahashi Harunori who sighed. Perhaps he was feeling disheartened, because he didn't reply, but instead gestured for the financial supervisor to answer.

"Yes!" The supervisor bowed to acknowledge the order, then explained to the executive, "We've contacted banks, trust companies, and even other related financial institutions! But the current situation is rather unique. First, these companies have also suffered huge losses due to the stock market decline and also need funds to stabilize the market. Second, the US investment banks' attack on our group lies in our excessive financial leverage. Therefore, methods like issuing bonds, trusts, and even loans are not only more difficult for us than before, but also take longer. Moreover, once adopted, they must be disclosed to the shareholders of listed companies, which might backfire. As for Changyin Bank, they are indeed willing to help us, but their funds are also starting to tighten, and due to the Bank of Japan's tightening requirements, their lending requirements are not as lenient as before. In short, things are quite complicated, and we must find new financing channels..."

"What about equity pledge?" the executive director then asked. "As far as I know, equity pledge can raise funds quickly, right? As long as it's pledged to a reputable financial institution, you can get money immediately to solve your urgent problem, is that right?"

The supervisor was taken aback. "Yes, but... pledging shares to banks also requires public disclosure to the listed company, and we've already pledged a considerable number of shares to Changyin..."

Unexpectedly, the executive shook his head, "No, I didn't say it was for pledging to the bank. I also didn't mention the shares that are already pledged. Isn't the purpose of the funds we're raising to acquire new shares?"

These words stunned the supervisor once again. "You mean..."

However, the executive officer smiled at him without saying a word, and instead turned his gaze to the finance minister, Iwasawa.

"Iwasawa, you're in charge of the group's securities and bond business. You're most familiar with the brokerage firms; we contribute so much in commissions to them every year, they'd definitely be willing to help us, right?"

These words immediately made Iwasawa's eyes light up. He seemed to have a sudden realization and immediately bowed to acknowledge the suggestion, saying, "I understand. Your suggestion is excellent. This method seems to be able to solve the funding problem."

Then, full of excitement, he said to Harunori Takahashi, "President, the managing director means that perhaps we can use the leverage provided by securities firms to solve our current problem. In the past, our company has always been cautious about the leverage services provided by securities firms because we have to consider investment risks. At most, we only used about 30%. Most of the time, it was about 20%. Moreover, during this stock market crash, we had already cleared out all the financing quotas we obtained from securities firms."

“But the situation is a bit different now, because we are the ones who are buying shares in the company. Our goal is to acquire shares and drive up the stock price. To some extent, we can control the market trend ourselves. The only trend is for our company's stock price to rise. So we can be bolder and raise funds at a 1:1 ratio. In this way, it means that we can raise as much money as we buy shares. Then we can start a virtuous cycle.”

"The best part is that since this is a short-term financial service provided by the brokerage firm for securities investment, this financing is only a temporary reception relationship and still falls under the scope of securities investment. It is just a disguised form of equity pledge, so of course we don't need to disclose it to the public. We only need to include it in the financial cost of securities investment when we issue financial statements. Of course, this will not shake the public's confidence in our company."

"Oh, I didn't know it could be done that way?" Takahashi Harunori's mood immediately improved, and he promptly expressed his approval to the managing director. "That's wonderful. You're truly insightful. It seems that, thanks to you, we've finally found a way to break this deadlock."

The executive was very sensible and knew how to behave appropriately as a subordinate, never showing off even when he made contributions.

"You flatter me too much. I was just offering a suggestion. I'm getting old and can only offer ideas. The real key to leading the company to glory is you, President. I'd like to add one last point: if you can find help, don't go it alone. For example, while using this method, it would be best to persuade those companies that have cross-shareholdings with us to increase their holdings in our company's stock again. That would be foolproof. After all, this could actually be a money-making opportunity, and I believe our allies won't refuse our good intentions."

Takahashi Harunori was clearly very receptive to this, agreeing verbally while his eyes lit up with excitement.

"Yes, we have to be absolutely certain. It seems the most crucial point is the stock price itself. If we successfully push the stock price up, we can get more financing. It will also allow those who buy our shares to profit. The higher we push the stock price, the more financial support we'll receive. This is equivalent to unlimited financial support, and it's the kind that's immediately available. Am I right?"

"Yes, President. You're absolutely right." The executive director was the first to nod in agreement, leading the others.

For a moment, Iwasawa wanted to add, "But that's just an ideal scenario. The opposite is also possible."

But knowing the other person's character well, he thought of Harunori Takahashi's temper and the golf ball that almost broke his head.

He wisely avoided ruining the atmosphere and swallowed back what he was about to say.

Thus, amidst unanimous praise, Harunori Takahashi regained his resolve and confidence. He recovered his former self-assurance and decisively issued several instructions without hesitation.

"Then it's decided. Managing Director, I'm afraid I'll need to trouble you to arrange a meeting with the people from the bank and trust company. We'll entertain them at the Ginza club tonight."

"Iwasawa, contact the people at the securities company immediately. I need to meet with their senior management today."

"And to everyone here, I hereby solemnly announce that starting tomorrow, we will mobilize all resources to begin repurchasing shares. In any case, by the close of trading tomorrow, EIE's stock performance will no longer show any weakness."

"Our bottom line going forward is to outperform the market and underperform the market until our share price returns to twice its book value!"

"So, whether or not you should seize this opportunity to make a small fortune in your own personal accounts is up to you to consider..." (End of Chapter)