George Pike, Fitzwilliams’ chauffeur and personal guard, drew up to the VIP gate of the All England Lawn Tennis and Croquet Club in Wimbledon and flashed the invitations. Fitzwilliams and Kennedy were guests of the Royal Bank of Scotland for the British Tennis Open. RBS maintained a lavish, but discreet corporate hospitality lounge for privileged guests. In their airconditioned Mercedes the two men were oblivious to the millions of Londoners, who at that same instant were sweltering in their offices in one of the longest heat waves to hit the South-East in decades.
A pretty hostess dressed in the 2009 Championship tennis outfit greeted the two bankers and guided them to the VIP hospitality lounge. Once their passes were inspected by security they were each served with a glass of refreshing Champagne. Looking around they were drawn to the vast panoramic window overlooking Court One, its roof closed for the first time in anticipation of an early summer thunder storm. Below them Andy Murray, cheered on by thousands of enthusiastic spectators, was giving a lesson in aggressive tennis to his Swiss opponent.
‘So here’s to the taxpayer,’ said Kennedy raising his glass.
‘Taxpayer?’
‘Well they’re paying for our treat.’
‘Of course, the taxpayer…that includes us,’ retorted Fitzwilliams.
‘Not me,’ smirked Kennedy. ‘At least in the UK.’
Surprisingly there were few people in the lounge in spite of the huge cost engaged by RBS for its very privileged guests.
‘So where is our friend Sergei?’ asked Fitzwilliams as he glanced down the menu, which including Shetland Isles salmon with chocolate truffle torte for dessert.
‘Probable screwing around with those Russian girls.’
‘Players?’ said Fitzwilliams raising his eyebrows.
‘No, guests, you know models and the like.’
‘Oh…. How are his affairs?’ he asked, then adding for clarity, ‘You know…business.’
‘He’s doing very well, oil’s shot up, doubling since the beginning of the year so he must be raking it in. He’s played his cards shrewdly, still making a lot of money the Russian commodities he’s buying at giveaway prices.’
‘What about property?’
‘That wasn’t his thing, but recently he’s dived into the Moscow market. Prices have collapsed.’
‘I see.’
There was a moment of silence as Fitzwilliams mentally compared the information to his own feedback.
‘Did you see the IMF report on the Irish economy?’ asked Kennedy unable to bear the pause.
‘Says we’re not to blame for the economic crash.’
‘That’s kind of them.’
‘But we’re to blame for overheating the economy. That’s what’s made things worse in Ireland than here.’
‘Hmmm.’
‘It won’t make good reading for the Taoiseach.
‘It wouldn’t, he was Minister of Finance during the good times.’
‘At least we moved our key operations to London.’
‘And we didn’t get too deeply into the Irish property market.’
‘The other silly feckers are up to their necks, can you imagine, seventy percent of lending at home was property-related at the end of last year.’
‘Don’t forget Cassel & Powercourt…and Allen.’
‘As long as they don’t drag us down.’
‘The deal for Allen’s place is settled?’
‘Tarasov signed this morning.’
‘Hmmm. Which one is Murray?’
‘No idea.’
‘The only worrying thing is all this talk of nationalization.’
‘It’s all relative…let’s hope that nothing upsets the apple tart,’ said Kennedy.
‘You mean apple cart Pat,’ said Fitzwilliams slyly poking fun at Kennedy mixing his idioms.
‘Whatever,’ replied Kennedy ignoring the barb and waving his empty Champagne glass at one of the waiters.
Kennedy knew next to nothing about tennis…their presence was strictly limited to meeting Sergei Tarasov, who, since his country’s players had reached the summit of the sport, had developed a passion for the game, like many other Russians.
Tarasov appeared accompanied by two other men.
‘You know Steve Howard and Tom Barton.’
‘Ah Tom! Of course, you really get around n’est pas. Dominica, the Aegean, and now London!’ said Fitzwilliams shaking Barton’s hand warmly.
‘Steve, nice to see you again,’ he said turning to Howard. ‘Still ducking and diving as they say.’
They laughed and patted shoulders as a waiter guided them to a table overlooking the court.
Tarasov attempted to update the bankers on the performance of Dinara Safina, who had just qualified for the quarter finals. But seeing his bemused Irish friends looking around, then out onto the court, he changed the subject. ‘So Michael, how is business.’
‘Looking promising Sergei, and you.’
‘For the moment I’m enjoying the tennis, a lot of my friends are here from Moscow.’
‘I can see that,’ said Fitzwilliams scanning the players’ names on the results board, where at least he could recognise the Russian names.
A waiter brought a magnum of Champagne with six glasses and Sergei ordered a bowl of caviar. He was looking pleased with himself, and justifiably so, thanks to Steve Howard’s behind the scenes negotiations he had just bought Brendan Allen’s London home. The troubled Irish businessman had been forced into a fire sale, starting with his racehorses, helicopters, executive jet, and now his luxurious London home.
Tarasov, who jumped on Allen’s Knightsbridge property, a bargain at twenty million pounds, proposed a toast: ‘To my new dacha.’
Glasses clinked and they sipped the excellent Champagne, provided by the British taxpayer, as the caviar arrived accompanied by freshly toasted blinis and a bottle of chilled vodka.
‘Steve arranged it for me, a good deal.’
Fitzwilliams smiled with a small nod in Howard’s direction.
‘There’s plenty of great opportunities out there Michael. That’s the positive side of the crisis. With quality you can’t go wrong.’
‘Cash?’ asked Fitzwilliams.
‘Cash,’ replied Tarasov.
‘Excellent,’ said Fitzwilliams. And it was, the money went straight to his bank to settle Allen’s outstanding loan on the property.
Tarasov poured six glasses of vodka then after helping himself to a large spoon of caviar and proposed another toast.
Then changing the subject he commenced, ‘What I’m looking at now Michael,’ looking more serious, ‘is an investment fund that can take advantage of the shakeout that’s taking place by investing in prime properties in major cities around the world.’
‘Sounds interesting,’ replied Fitzwilliams cautiously.
‘What I need are partners and a London fund manager.’
‘Have you anyone special in mind.’
‘What about your bank Michael?’
‘It’s certainly worth thinking about,’ he replied seriously, judiciously matching Tarasov’s tone.
‘Good.’
‘What kind of cash can you put up.’
‘Let’s say a couple of hundred million. With that we could find the rest on the market, say a total capital of two or three billion, a little leverage and we would be in a very strong position to do what we want, starting in London.’
Fitzwilliams looked at Kennedy who had been silent for once.
‘We can do a simulation, it wouldn’t take more than a couple of days.’
‘What about your government’s regulations for hedge funds?’
‘Don’t worry, Brown’s already in trouble trying to organize the banks he’s nationalized, it’s like trying to herd cats.’
‘Cats?’ said Tarasov puzzled.
‘Forget it Sergei, there’ll be no problem.’
‘Очень хороший,’ said Tarasov emptying his glass. ‘Steve, as you know is in property, we’ll draw up a lis
t of potential acquisitions. Tom is here for the tennis,’ he said with a wink whilst plastering a slice of toast with caviar and refilling the glasses with vodka, ‘На здоровье! To us!’
‘Sláinte,’ echoed Kennedy and Fitzwilliams.
Tarasov may have been pleased with himself, business was beginning to look up. The same could not be said for Russia. Its economy was directly linked to the price of oil and metals, eighty percent of its exports, it was in the doldrums. At around sixty dollars a barrel coupled with a relatively high cost of extraction they were far from oil’s one hundred and fifty dollar peak.
The Moscow stock exchange had fallen twenty percent since the beginning of June, forcing Vladimir Putin to order banks to increase lending. Russia was facing the worst economic crisis since its default in 1998. It was a big come down after its invasion of Georgia, when for a moment the Kremlin imagined it was a superpower again.
‘So let’s meet in your offices, say Tuesday.’
‘No problem, my secretary will fix things up, at St Mary Axe.’
‘ЧTо, What?’
‘That’s the address Sergei.
‘Да, Да.’ The Russian looked at his watch, ‘Sorry I have to go, you know a presentation to the Russian players.’
The Russian, together with his two friends, bid the bankers a cheerful goodbye and headed for exit.
‘So what do you think of that?’ Fitzwilliams asked Kennedy.
‘It might be just what we are looking for, if Tarasov’s got the money,’ Pat replied, his voice slightly slurred and face flushed as the vodka took its effect. ‘Howard’s very smart.’
‘Could be.’
‘Well the timing is right, hedge funds are picking up again with more liquidity about.’
‘Who was the other fellow?
‘Barton, Tom Barton, good chap, met him in Dominica, a consultant ― knows what he’s doing.’
The meeting with Tarasov had simply confirmed Fitzwilliams’ own calculations. He had lost confidence in the kind made by Greg Schwarz, mathematical models and all that linking commercial property to economic growth and equity performance. His reference point was the US, where prime commercial property auction prices had fallen by half compared to the prices paid a couple of years before as the number of firesales shot up.
Investors like Tarasov were attracted to hedge funds, in spite of the annus horribulus, and many continued to make huge profits.
‘A new property fund would be a good idea,’ Fitzwilliams mused. ‘Our Nassau fund is picking up and we get 1.5% for managing the fund and 15% of the profits.’
There was nothing to lose for Tarasov and other cash rich investors, especially as equity markets looked unlikely to recover quickly in the very near future.
Tarasov’s idea for a commercial property fund was exactly what the Irish Netherlands needed. It was now up to Kennedy to meet and convince investors; the problem was property vacancy rates were rising and rental incomes were falling. Fitzwilliams was however convinced that government debt would inevitably lead to inflation making prime property a good hedge.
The moment was right. Ireland’s property empire in London was unwinding and the sell-off of its trophy assets about to start, a feast for the vultures and jackals, and Tarasov planned to be amongst the first served. The heady days of 2007 were long gone when Irish tycoons like Brendan Allen announced spectacular property deals in the City, scooping up iconic London’s landmarks.
Besides Brendan Allen, those in trouble included Derek Quinlan. The latter an ex-tax inspector turned entrepreneur, had built an empire fuelled by cheap loans. Together they had burnt their fingers in buying a share in the Citigroup Tower at Canary Wharf from the Royal Bank of Scotland, with loans from Santander and AIB. In 2007, in the market frenzy, they had paid top dollar, at the peak of Ireland’s foray into prime international property.
There was ten billion pounds worth of Irish owned property in London, much of it in trouble, and the rush to get out accelerating by the day. Included in the targets Tarasov had set his sights on were iconic hotels and landmark buildings. Amongst these were the magnificent buildings built in the thirties that dominated the north side of Grosvenor Square, which had later become the headquarters of the US Navy in Europe, in another register was Battersea Power Station on the south bank of the Thames.
Along with Tom Barton, Steve Howard entered the fray, opening discussions with China’s sovereign wealth fund, the China Investment Corporation, with a view to acquiring the Citigroup Tower and other City properties.
Unlike many of the ten thousand or so hedge funds that existed, the new commercial property fund would not need to draw the attention of investors. The vast majority of such funds managed less than one hundred million dollars, whilst the larger funds managed over two billion dollars. Institutional investors formed the largest group of investors in funds and had the means to carry out the research and risk control. There were considerable profits to be made by banks and managers to handle hedge funds, charging fees in the order of two percent on assets managed and twenty percent on profits.
Tarasov’s plan was to attract nouveau riche investors, not only from Russia, but more importantly from Asia. Such investors had a growing appetite for the kind of luxury hotel that catered for their privileged classes, and overseas headquarters to house the business giants that were emerging in the Middle Kingdom. Asian investors, despite the crisis, had been discreetly investing in iconic properties, one of which was the vast Mansion of Prince Roland Bonaparte, which had been restored and transformed into the luxurious five-star Shangri-La Hotel. It had been built in 1896, on avenue Iena in Paris, just a stone’s throw from the Trocadéro with breath-taking views of the Seine and the Eiffel Tower.
In contrast to the disaster that had hit the financial world, many hedge fund prospered and had performed better compared to bonds and equities. The worst seemed over and investors were returning to the market, which was to the advantage of hedge fund managers, given their ability to adapt quickly, developing new strategies in a market where opportunities were numerous and distressed property owners were desperate.
Since the onset of the crisis, however, a good number of hedge funds had been liquidated as asset values fell and investors pulled their money out. The hardest hit were those who had been over-leveraged or funded with hot money.
Kennedy’s initial task was to put together a team, and quickly. His job was facilitated by the fact that many traders and fund specialists had lost their jobs in the shakeout. Liam Clancy was amongst them. Kennedy first thoughts were to the bank’s Dublin investment branch, but then he remembered it had been hastily shut down nine months previously.
A quick call to Human Resources solved that problem and the next morning he received a complete file with a list and details of Dublin’s former employees and their respective responsibilities. He then drew up a shortlist of suitable candidates. Liam Clancy’s name figured amongst them.
The fact that the Irish team had dispersed made his task a little harder, but after a few calls to Dublin he learnt Clancy was living in Spain. That pleased Kennedy with his fascination for foreign places; it also reminded him of his own beginnings. The lad had added overseas experience to his CV, probably spoke Spanish, which if not a great asset in itself meant that it had sharpened his wits. The young ex-trader had certainly been through trying times, but if he had survived he would made a good candidate given his prior experience with the bank, and last but not least he was Irish. Kennedy instructed Human Resources to locate the lad.
A call to Clancy’s parents in Enniscorthy turned up his address in Marbella and he was promptly summoned to London, expenses paid, where Kennedy, not a believer in procedures, at least for the kind of job he was offering, could inspect him first hand. Clancy did not try to play hard to get. He could not help thinking of the many City jobs that had gone for ever along with the generous pay packages and bonuses that went with them. Tens of thousands of jobs had disappeared and
there would surely be many vicious cuts more to come.
Clancy remembered the small group of frazzled Irish Netherland’s traders that fateful Friday eighteen months earlier standing forlornly at the bar in the Dublin pub, it was like an Irish wake, where the mourners gathered to drown their sorrows. The sense of shock had been complete; the entire trading section of the Irish Netherlands had been terminated, at a moment’s notice and without so much as a by-your-leave.
‘There’s a good probability we’ll have a currency crisis on our hands, so don’t bet on sterling, that’s why we’re hedging our bets,’ said Kennedy feigning a hint of insider information.
‘What makes you think that Pat?’ asked Barton digging for more details, even though the fears Kennedy voiced were evident, even to the least well informed.
‘It’s easy Tom, propping up our competitors is costing the government between one hundred and one hundred and fifty billion pounds. That’s bad for UK debt, which is heading for one hundred percent of GDP.’
‘Like Iceland or Ireland.’
Kennedy’s face fell; he did not like to see Ireland put down.
‘We’re not Iceland Tom.’
Iceland had been forced to borrow from the International Monetary Fund to avoid default, and Ireland, in the throes of the severest economic crisis since the thirties, was heading in the same direction in spite of Kennedy’s protestations.
‘When I was a kid there were many really poor people at home, you can’t comparable our situation to that.’
Barton let it pass. Forgetting Ireland, Britain was up to its neck in one of the most severe financial crisis ever seen in peacetime with the risk bond yields would be forced up, meaning an even greater debt burden. The government would need to sell almost a trillion pounds of gilts over the next four or five years to keep the Britain afloat, which did not bode well for sterling.
‘In the worst case scenario we could even see a run on the pound. Of course that would affect us less than other banks as we’re in the Eurozone,’ said Kennedy as ever the optimist. ‘I mean with our branches in Amsterdam and Dublin.’
‘Let’s hope so Pat.’
Chapter 30 A LITERARY AGENT