*
Russia was already suffering as it struggled, without success, to move away from its commodity based economy, almost entirely dependant on oil and gas exports together with a handful of basic minerals.
The prospect of another Cold War was daunting, given Fitzwilliams’ investment in the Russian market. Unchecked deindustrialisation and demographic collapse was already gnawing at the foundations of Putin’s Russia, and on top of that he was acerbating the situation by stumbling blindly into a conflict with the West. Russia’s dependence on foreign capital meant its economy would suffer for years to come, as it squandered its foreign reserves to pay off debts labelled in foreign currency.
And if that was not bad enough the situation was aggravated by the Fed’s policy hints on money tightening, which was bound to come sooner or later, with serious implications for Russia, and the other BRICs, all of which had borrowed cheap dollars.
WATERFORD – IRELAND
“John, thanks for coming down. Tom Barton will be joining us, he’s flown in to Waterford, should be here anytime now. We’ll be having lunch together on the boat, with a little cruise down to Dungarvan.”
He saw a shadow of doubt on France’s face and laughed, “Don’t worry the weather is fine, the sea’s as flat as a mill pond.”
“Fine.”
“I suppose you’re wondering why I’ve asked you to come down,” Fitzwilliams asked with a weak smile.
Francis shrugged.
“I hope I wasn’t interrupting your vacation?”
“No, not all Michael.”
“I wanted to talk to you well away from prying eyes and one never knows … microphones and all that,” he said seriously.
Francis was puzzled, but held back his curiosity.
At that moment a car pull up on the quayside. It was Tom Barton who had been picked up at Waterford Airport by Fitzwilliams’ chauffeur.
They waved and Barton looking bronzed waved back. He had been flown in on the company jet from Biarritz where he was holidaying.
After exchanging greetings the three men headed towards the sun deck where a table was laid out for lunch.
“We’re lucky for a change, the weather is almost Mediterranean,” said Fitzwilliams laughingly.
A waiter served drinks as the banker pointed out the local landmarks to Barton.
“So, here’s to us.”
They raised their glasses, the two visitors looking at Fitzwilliams expectantly.
“Well I won’t keep you in suspense. The reason I’ve invited you both here is that I’m worried. Seriously worried. Our little meeting here is in the strictest confidentiality, which explains why we’re here on the Marie Gallant at Kilmore Quay.”
“I admit the boat is not very discrete,” he said with an apologetic smile as he nodded to the strollers on the quay, “but inquisitive journalists and the like will just see me on holiday with the family and friends cruising around the south coast.”
It was early August and Francis had been relaxing in his elegant eighteenth century home in Dún Laoghaire, a few kilometres to the south of Dublin, when, the previous day, he, like Tom Barton, had received a cryptic message from Fitzwilliams inviting him down to Wexford for the weekend.
Early that morning he had driven down to Wexford along the coast road from Dublin. Fitzwilliams was clearly anxious; something that John Francis had never seen before, at least not to the point where he seemed unsure of himself, as he obviously was now.
“I’m seriously concerned about what will happen if shooting starts.”
“Shooting?”
“The Russians.”
“I see.”
“We’re in deep. I mean very deep.”
Francis scrutinized Fitzwilliams, wondering if he was unwell, not entirely himself, perhaps a little paranoid. He had himself followed the events in the Ukraine and the crash of the Malaysian airliner, which was obviously worrying, however he did not consider it would cause more than a temporary crisis in the West’s relations with Moscow.
“Yes … and the trouble is I don’t know to what extent the bank has been used to facilitate the affairs of certain unsavoury Russians, including our friend Putin and his cronies.”
“I see.”
“What I’d like you to do John, is imagine a worse case scenario and draw up a contingency plan.”
Francis was surprised as he obviously did not have all the information Fitzwilliams possessed on the bank’s dealings with its Russian partner.
“Tom could help you, discretely. He’s familiar with our recent expansion.”
“And Pat?”
“I’m not pointing at Pat, but he’s always been a bit too close to Sergei. Anyway, this kind of strategy is not in his brief,” he replied. Then adding as an afterthought, “at the moment he’s too tied up in China … and his wife.”
Francis smiled. Pat Kennedy was still very enamoured with his new Chinese wife, who was very rich in her own right, at fact that seemed to peeve Fitzwilliams who had up until Pat’s marriage with Lili always been his master and mentor. Pat was now slipping out of his control, independent, though under the influence of Lili, whom Fitzwilliams saw as Cixi, a young version of the Dowager Empress, manipulating the pliable Kennedy.
Francis had always suspected Fitzwilliams’ relationship with Kennedy had been one of master and servant and since the start of the Ukrainian crisis, the banker had unjustly focused his growing ire on Kennedy. A situation which made Francis wonder whether Fitzwilliams was not right in himself, though there was little doubt the growing Russian conundrum was a source of serious worry for the man.
In the lead up to the events, Francis had to admit to himself he had become concerned Michael Fitzwilliams had bitten off too much. The bank’s ambitious expansion into Russia and China had been too rapid and though Michael was solid, the conjuncture was such that even the strongest could bend under the burden.
Kilmore Quay – Wexford – Ireland
All that aside, Francis in his role as Fitzwilliams’ counsellor in matters of geopolitical strategy could not squirm out of the corner he now found himself in, which was essentially one of taking sides. On the one hand was his friend, the CEO, and on the was Kennedy, with whom he had grown close, having shared numerous adventures in the course of their business relations.
There was little doubt the banker in his drive to developed the group had allowed his roving emissary too much freedom with the result Kennedy had become his own man, developing his own ambitions. As head of the banker’s think tank, the responsibility and loyalty of Francis was towards Fitzwilliams, whose his empire was in danger, and this was an unequivocal call for help.
“I want us to be prepared in the case that things go wrong.”
Francis nodded, wondering to himself what precisely he had in mind.
“So let’s enjoy the fine weather while you’re both here,” Fitzwilliam said leaning back, waving to the sea and the sky as the Marie Gallant II slipped out of the small harbour, admired by the summer strollers visiting the picturesque fishing port.
“Here’s to us.”
They lifted their glasses.
“As I see it John,” said Fitzwilliams in a pensive tone, “Putin is at the source of all these problems.”
“Well Michael, it would perhaps be best if you didn’t voice your opinions about Putin too loudly.”
“Oh! Why?” said Fitzwilliams suddenly alert.
“It’s very simple Michael, he’s probably one of your most important individual clients.”
“What!”
“Remember, Vladimir Vladimirovich is one of the world’s richest men and your associate Sergei one of his friends.”
“So?”
“Well, there’s little doubt that Sergei has channelled part of Putin’s fortune through your bank to one of your favourite safe havens.”
Fitzwilliams stalled, a sheepish look on his face, it was not often someone cornered him.
“No doubt, but it doesn’t make me
happy.”
“Happy? Maybe not happy, but responsible, yes.”
“His fortune is estimated at between forty and seventy billion dollars, perhaps even more, estimations are wild. And even if it is exaggerated he certainly outranks any other of the world’s politicians and most business leaders.”
“Corruption,” said Fitzwilliams weakly, as though he felt uneasy using the word.
“Sorry to say it Michael, but money overrides everything. The major oil companies are mostly pressing ahead with their plans in Russia in spite of threats and sanctions. Look at Aquitania, they have begun drilling in Russia’s Arctic with Rosneft, even though Rosneft is on the sanctions list.”
“We’ve got a lot of money tied into oil in Russia.”
“Well companies like Aquitania must be doing a lot of soul-searching now, we’re all getting drawn deeper into the Russian quagmire.”
“According to what I’ve heard,” said Barton, “it’s not only the political risk, some people are wondering if they’ll ever make money in their Arctic regions. The cost of getting oil out of the ground is too high.”
“Yes and no. Most of Putin’s wealth comes in the form of his holdings, like Surgutneftegaz and Gazprom. He controls around forty percent of the shares in the oil and gas company Surgutneftegaz, five percent stake in Gazprom, the largest energy company in the world, and fifty percent of Gunvor, that’s a Swiss based trading company that trades oil worth one hundred billion dollars a year.”
“Well, he’s lost a few billion in the last couple of months,” said Barton. “The Micex has gone through the floor.”
Francis laughed.
“Maybe he only declares a salary of a couple of hundred thousand dollars and a very ordinary Moscow apartment, not forgetting a Lada for getting around when he’s not racing through the streets with sirens at full belt and flashing blue lights. But he is a modern day autocrat with as much power as a tyrant.”
Fitzwilliams nodded ruefully. “And I got into bed with him.”
“You heard what Putin said about press reports on his fortune?” asked Barton, “Gossip, nonsense, nothing worth talking about, picked out of someone’s nose by journalists and smeared on their little papers.”
“Our Russian friend has delightful repartee,” said Fitzwilliams with a derisive snort.
“Like it or not he owns Russia. Anything he desires he can have with a snap of his fingers.”
“His cronies will give him anything he wants.”
“Is there no opposition?”
“Of course there is, but it’s a dangerous business.”
“He’s not invulnerable, if he miscalculates the whole thing could come tumbling down and the long knives would wreak havoc. That’s why he has to have a nest egg somewhere.”
“It didn’t do Gaddafi or Saddam much good.”
“He still young man … relatively speaking,” said Barton. “That’s why he needs to consolidate his and his friends wealth, in case the people turn nasty.”
“If he makes a mistake and the economy is hard hit, it would not be a workers’ revolution,” Francis told them, “it would come from the new business and middle classes who have grown used to their privileges. Little remains of Russia’s industrial might and the proletariat as such no longer exists.”
“Well that’s another story, the question is what do we do to pre-empt the negative effects this could have on the bank if things get worse?”
The Russian empire had shrunk, its economy commodity based, its manpower in decline, and its borders potentially difficult to defend in East Asia. Rushing into the arms of a mighty China could prove disastrous as the Middle Kingdom held not only a number of old grudges against Moscow, but also a long list of territorial claims à la Crimea. China’s claims in the South China Sea were an illustration of the attitude it could take if and when it turned its attention to Eastern Siberia.
BASQUE COUNTRY
It was the eve of the French national holiday as Pat Kennedy and John Francis stepped out of the bank’s jet at Biarritz’s Parme Airport. During the one hour flight from the City Airport they had changed from business suits into summer slacks and polos. Incognito, Kennedy told Francis, ready for the drive to Hendaye in a hired yellow Renault Twingo passe partout. Kennedy had persuaded Francis to join him for a summer break, escaping the stress of the on-going crisis that was weighing heavily on the City of London.
They were the guests of Tom Barton and Sophie Emerson for the five day weekend at her villa in Hendaye, twenty kilometres to the south of Biarritz. The fact Kennedy had more or less invited himself, was of little importance for Tom or Sophie, on the contrary it was a long-standing standing invitation and they were delighted to see the two Irishmen.
Pat had earned his break after months of jetting back and forth to Hong Kong and Beijing promoting the bank’s business in China, which as he put it, was another kettle of fish in comparison to Europe, where the crisis rumbled on with almost daily plans to save Greece, Ireland or some other peripheral country. Each passing day brought news of ministers rushing to Brussels, then announcing hundreds of billions in loans, all of which seemed to do nothing to douse the flames that were engulfing the eurozone.
They were welcomed by cocktails and lunch served by the pool overlooking the Baie de Chingudy. The weather was perfect. “Not always the case,” Sophie warned them, “the hills are not green for nothing.”
“Better than London,” said Pat.
“… and even better than Dublin,” added Francis.
“Don’t talk about Dublin,” complained Kennedy. “Even our credit rating has been downgraded to junk.”
They all laughed.
The fear was, like Greece, Ireland would need a second bailout from Brussels. The eurozone debt crisis seemed to be spiralling into an uncontrollable dive as EU leaders wrangled over who would foot the bill for the one hundred billion euro package for Greece.
“I see London’s gloating over Ireland’s problems,” said Barton.
“Well they shouldn’t be,” said Pat. “There’s risk of a default, a disaster for the UK given the massive loans British banks like RBS and Lloyds have ladled out to Ireland.”
“It would provoke another round of bank failures in the UK,” Francis told them. “It’s why the City sees Ireland’s difficulties in a different light, making Dublin’s needs a special case.”
“Hey, we’re not here to talk about business,” said Sophie filling their glasses. “I hear you’ve been back to Russia,” she added with a twinkle in her eyes.
Francis took off his glasses and wiped them with his napkin. It was impossible to keep a secret.
Hendaye – France
“Yes, I suppose they told you.”
They all laughed. His relationship with Ekaterina was an open secret. They had met at the Pushkin Museum in Moscow - the inauguration of an exhibition of Mid-Twentieth Century Contemporary Art, where he along with Pat Kennedy and Tom Barton had been invited.
“What’s her name?” enquired Sophie brushing aside his embarrassment.
At that moment the noise of a jet approaching San Sebastian Airport on the other side of the bay turned their attention.
Francis dodged the question as Pat came to his aid.
“What we’re worried about is that contagion could spread to Italy. All the signs are there with markets urging governments to spend money they haven’t got.”
John Francis, quickly picked-up the thread, speaking of an idea that was making the rounds: a parallel between the on-going economic turmoil and situation that had led to WWI.
Peace in Europe had reigned for seventy years and in spite of serious regional wars, the great powers had somehow, at least for the time being, managed avoided the spread of conflicts.
To Francis, who adhered to the belief that human history was composed of cycles, any idea that humanity could shape its future was nothing more than a myth maintained by political and cultural establishments. Civilisations were as ephemeral as an
imal species invented by nature, their existence limited by the force of change, the rest was nothing more than an illusion to pacify the masses. Of course the actors changed, as did the settings, but life and death as well as the perpetual struggle for power and influence followed as surely as did the seasons.
In the past rulers had justified their divine authority by pointing to their supposed exclusive communication with a god, who demanded, come what may, unconditional obedience. The ideas of long dead leaders, who went to war with god at their side, were obsolete. Kaisers, czars, emperors, kings, princes, tyrants, fuhrers and caudillos, or whatever they chose to call themselves, had been successively ditched by their gods. All of which made Vladimir Putin's overtures to the Russian Orthodox Church strike Francis as all the more astonishing.
His visit to Ekaterina’s grandparents in their picturesque village to the south of Moscow, showed how religion could serve as a unifying cement - just as it had in Ireland during its difficult times, a guide, a rhythm with its traditional festivals that brought families, friends and neighbours together, a reminder of their past joys and trials, and a comfort in death and suffering, but not as a banner under which their men were forced to march to war.
Russians had little illusions about Communism and its invention of Stakhanovism - collective lies, perpetrated by both leaders and workers movements, where Russians paid lip service to Communism’s mythology under the threat of the Gulag. Lenin, Stalin and their successors had destroyed the tissue of the traditional life of Russian peasants, persecuted the kulaks - better off peasants, starved millions of Ukrainians to death by forced collectivisation, condemned millions to Gulags and murdered dissidents by the tens of thousands.
The temptation that drew Putin to authoritarianism was ingrained into the Russian psyche. To the East, China, Russia’s one time protégé, had emerged as a giant, a future leader, an ascendant civilization, compared to which Russia was a failed power, an empty space.
The giant had awoken and had begun to flex its muscles, projecting its military power into the South China Sea. Where would it turn next? Perhaps Eastern Siberia? The dangers of riding the Chinese dragon were too great even for Mr Putin.
To the west, Europe was distracted by a titillating comic opera: François Hollande gallivanting around on a scooter for his midnight trysts with an actress girlfriend, a short fat Romeo in an oversized crash helmet. A buffoon, a poor man’s version of Il Cavaliere, Silvio Berlusconi, whose clowneries and scandalous bunga parties with teenage call girls had amused the gallery for years, when Italy tottered towards the brink of disaster, one of Europe’s largest economies, the default of which would reduce Greece’s difficulties to nothing more than a bagatelle.
“This afternoon its San Sebastian and no politics,” announced Sophie, in an effort to steer them away from business and geopolitics.
A BUBBLE
In 2011, Kennedy, still making his first steps in China, had been warned by Lili that its most dynamic domestic motor of growth: real estate, both residential and commercial, was seriously over heating; threatening the stability of the country’s entire economy. She explained how every middle-class Chinese family had invested their savings in residential property. It was an indisputable fact, wherever Pat looked new apartment blocks were springing up, and many were empty. Lili told him buyers saw their investment as money in the bank, growing by leaps and bounds, year in year out, earning greater returns than the interest paid by any bank and with little or no risk, up to that point.
Whereas many Chinese home buyers made large cash deposits, most of the purchase price was paid through a bank mortgage, thus the boom in residential construction meant that almost twenty percent of all bank lending in China was property linked.
It was a paradoxical situation considering the average Chinese family, at least those Pat had observed in his travels, could not even dream of owning one of the splendidly equipped homes advertised in glossy promotional brochures handed out in shopping malls.
Who were the buyers and what would happen if the bubble burst? he asked Lili recalling the still painful memories of the property crash back home.
Her reply was a shrug of the shoulders.
The Chinese property market was beginning to resemble a re-run of Spain in 2007. After growing at more than twenty percent, double the rate of its GDP, for more than a decade, demand was falling for a number of reasons including changing family demographics.
China was riding a tiger. Property growth consumed credit, services, raw materials: steel and concrete, as well as electrical and mechanical goods, domestic appliances and furnishings. Any serious slowdown would automatically drag down those other sectors and the slowdown in construction would inevitably force the Chinese government to re-think the country’s long running growth model.
This, explained Lili, was the source of all the perils that faced China. The question was not if the property bubble burst, but when. In the words of John Francis, China supplied the world with manufactured goods and the world supplied China with the money needed to inflate its property bubble.
Over the course of 2014, little by little, Lili’s predictions were confirmed. Of course she had not been alone, but as far as Pat was concerned his confidence in her was total; she was Chinese; from a banking and business family, one that had deep roots in China and Hong Kong. The economic slowdown almost certainly explained the reasons for the frenzied actions of certain Chinese businessmen and leaders: a headlong rush into overseas investment.
HIGH STAKES
Pat felt he had made the right choice, Hong Kong was safer than Russia from all points of view. Perhaps he was getting older and wiser. Certain businesses were best avoided, losing money was one thing, but ending up behind bars, or on a mortuary slab, was another.
The news that Thierry Leyne, an associate of Dominique Strauss-Kahn, had jumped off Tel-Aviv’s highest building, a tower where he rented an eight hundred square metre appartment, just a couple of days after Christophe de Margery, the president of the French oil giant Totale, died in equally strange circumstances, unnerved Kennedy. Christophe de Margery’s Falcon inexplicably crashed into a snow plough on take-off at Moscow’s Vnukovo Airport.
The ex-IMF president’s company LSK (Leyne Strauss-Kahn), had been mixed in a series of nebulous deals linked to suspected money-laundering. Strauss-Kahn had resurfaced as an arranger for a number of very doubtful clients, more especially the National Credit Bank of South Sudan, in a country ranked 163 by Transparency International, reputed to be centre for illegal banking and black market currency dealings, and where corruption was rife.
Strauss-Kahn’s dealing could have been considered an unfortunate incident had it not been for the fact he had also been appointed to the board of the Russian Regional Development Bank, by Igor Sechin, Rosneft’s chief executive, and was a board member of the Russian Direct Investment Fund. On top of that Strauss-Kahn was appointed chief executive of Credit Dnepr by the Ukraine billionaire Viktor Pinchuk.
It was a strange and dangerous hotchpotch of affairs to say the least, and one that could have provoked the death of his partner.
Accidents and suicide had always been a favoured method of eliminating business enemies, those who obstructed ambition, or were inconvenient witnesses. It was as old as time, going back to ancient civilizations where poisoning and other dirty tricks were best-loved means of settling succession. It was very effective; after all it was very final.
In the case of INI the stakes were huge. The subsidiaries and emanations of Michael Fitzwilliams’ bank in: Hong Kong, Ireland, Amsterdam, Moscow and the Caribbean were worth billions. City & Colonial had got its hands on the heart of the bank, but the structure of INI’s overseas affiliates was such that a large part of its holdings escaped the ambitions of the predatory giant.
Perhaps he was being paranoid, but Pat Kennedy, with reason, figured his sudden demise would facilitate any plan to seize the whole group. The initial danger had passed and perhaps it was the moment
to take a break and leave the bank in the capable hands of Angus MacPherson, together with the Wu’s, a family that had survived the upheavals and transformations that had changed the face of China.
If City & Colonial was a house of secrets with friends in high places to protect, it was the Russians that Pat feared most. Those who had never met the likes of Dermirshian, to whom human life meant nothing, would have had difficulty in imagining the lengths such men would go to protect their and their friends interests.
Lili had not been joking when she told him he needed a personal bodyguard, an old Chinese tradition for the rich.