by James Flint
Alex paused. A stack of letters from HSBC? Freddie Winston’s bank? He took the letters out and placed them in his lap (he’d given up trying to sit at the desk). They were from the bank’s retail arm, rather than the investment division to which Freddie belonged.
Twenty minutes later Alex was still reading through them, and what he read unnerved him. Two years earlier, no doubt with an expectation of having a project to both fund and occupy his retirement, Miles had set up a small company, named himself and Margaret as directors, and taken out a loan in order to buy several residential properties to rent. Nothing wrong with that, although the logic was questionable given that property prices were at all-time highs and it was hard to see how rents alone would stretch to cover the loan repayments. But capital accrual could in theory take care of that, and it was not the major problem. No. The problem, as Alex now identified it, was something different. It was the fact that the loan had been bundled, at the bank’s behest, with an interest-rate swap.
An interest-rate swap was a complex instrument. Alex knew such crossbred beasts were being herded in volume through the derivative desks where they were served up to hedge funds and other banks looking to manage their own exposure on a loan or forward trade. But he hadn’t quite realised that on the other side of the deal they were being packaged up on the high street for unsuspecting folk like his father.
Miles wouldn’t have realised it either. As far as he had been made aware – if the correspondence Alex now held in his hand was anything to go by – he was being sold a 5 per cent loan with integrated insurance on which the maximum interest payable was capped at 7 per cent even if standard interbank rates should rise beyond that. What was not made clear, and was only referenced at all deep in the impenetrable booklet of terms that accompanied the paperwork, was what happened if interest rates should fall.
At that point the deal revealed its other face, the one beloved of the broker and the counterparty. For the trade that underpinned it was something called an asymmetric leveraged ‘collar’. The collar in question was 2 per cent either side of the original 5 per cent rate. As long as the interbank rate, commonly known as LIBOR, stayed in this zone between 3 and 7 per cent, everything was fine. But if it dropped out of the collar, if LIBOR should fall below 3 per cent, then the rate Miles was obliged to pay would actually go up.
By what amount it would rise depended to some degree on the fee that the broker – the bank – had charged. If the deal was symmetrical, if the bank had insured against the same amount that Miles had borrowed with the counterparty, then the rates would go up proportionally. Under such an arrangement a fall to a LIBOR of 2 per cent would mean that Miles’s rate would go up to 4 per cent; a LIBOR of 1 per cent and Miles’s rate would rise to 5 per cent. But the kinds of bonus fees that could be charged for such arrangements were not, Alex knew, enough to satisfy the appetites of traders. They wanted to skim silly money off these kinds of deals, and because everyone knew that interest rates weren’t going to fall they insured the total amount of the principal loan against interest-rate rises and insured double or even triple the amount of the principal against rate falls, and then pocketed the difference, earning the collar the adjective ‘asymmetric’ in the process. And they did this without bothering to make it clear to the end client that if LIBOR fell to 2 per cent he could end up paying 8 or 10 per cent interest on his loan, or even more. Because, the traders told themselves, it wasn’t going to happen. The interbank rate had been around 4 or 5 per cent for years, and that was low, historically. No one could really remember it being any lower than that. And if it did, by some freak, fall below that point, chances were that by then all the traders involved would have long since moved to other desks, other jobs, other banks. Making the outcome for gulls like Miles, as far as they were concerned, pretty academic.
For Miles, of course, such an outcome would be very real indeed, as he would be the one person who would not be able to escape from its logic. In the event of a drop in rates his only way out of the collar he’d clipped round his neck would be to buy his way out by compensating the counterparty for their corresponding loss of income. Depending on the interest rate at the time of curtailment this could easily be 10 per cent of the principal. So: three hundred thousand pounds. Or more.
The sound of someone coming down the stairs broke Alex’s focus. He slipped the letters back into their drawer, vacated the oak chair and nipped through the dining room back into the kitchen, where he busied himself making coffee. As he was priming the Gaggia, Caitlin walked in.
‘Hello stranger,’ he said.
‘Hey.’
‘Been a while, hasn’t it?’
‘Certainly has.’
‘Fancy a latte?’
‘Okay.’
Alex fetched a clean mug from the draining board, put the machine through its cycle, foamed some milk, poured it in, and handed Caitlin the finished drink. ‘Sugar’s there, if you want it.’ Her face was puffy; she didn’t look great. Nor did the manky bandage she had on her hand. ‘Rough night?’
‘Couldn’t really sleep.’
‘I’m not surprised. I’m really sorry about your dad.’
She sipped the coffee. ‘Thanks.’
‘You want some toast? Or cereal?’
‘Maybe later.’ She pointed to the fruit bowl on the side. ‘Mind if I take an apple?’
‘Of course. Help yourself. Whatever you want.’ She took one but didn’t bite into it. ‘I hear Jamie’s back.’
‘That’s right.’
‘How’s he doing?’
‘Oh he’s just great.’
‘Really?’
‘He’s over the moon. Why wouldn’t he be?’
‘I heard there was some issue with the will.’
‘Something like that.’
‘Well if you need to talk …’
‘Reckon your parents would mind if I took a bath?’
‘I’m sure that would be fine. You know where it is, right?’
‘Yep.’
And then she was gone and Alex had to leave too, puzzling over her detachment and whatever it was she’d done to her hand as he located his car keys and headed out to pick up his brother.
—————
The platform at Warwick Parkway sits atop a steep embankment, so when Matthew’s train arrived and the passengers had spilled out of the carriages they all had to descend the metal staircase built around the shingled tower that houses the little station’s solitary lift. Down they went, round and round, passing in and out of view before entering the glass and steel ticket office only to reappear a moment later in the car park via a set of automatic sliding doors.
Matthew was the last to emerge: beanie pulled down over his ears, rucksack on his back, jeans splaying over dirty trainers, mauve plastic cat carrier tucked beneath one arm.
‘What’s that?’ Alex said, as he got out of the car to greet his brother.
‘Cat,’ said Matthew.
‘Christ – what did you bring that for? It’ll drive the dogs insane.’
‘They’re already insane. I couldn’t get anyone to look after him.’
‘Mum’s going to be delighted.’
‘She’ll get over it.’
Matthew stowed his stuff; fortunately the cat box slotted fairly neatly onto the shelf behind the Porsche’s two front seats. Then they climbed into the car.
Alex started the ignition and pulled away, enjoying the way the puckered leather seam on the inner circumference of the steering wheel ran through his fingers as he guided the machine out of the car park.
‘How’s the whale-watching?’
‘It’s not fucking whale-watching.’
‘What’s wrong with whale-watching?’
‘Well, nothing, apart from the fact that there are so many tourist boats taking people out in places like Montauk that they’re upsetting whale migration routes and damaging the animals’ hearing with the vibrations from their engines.’
‘Oh okay. I didn’t kn
ow.’
‘Don’t tell me you’ve been on one of those dumb trips?’
Alex thought about his Montauk misadventure. ‘Well, my friends went. I was sick.’
‘I knew it.’
Distracted by the sudden appearance of the ghosts of Carlos and Lucía, Alex changed the subject. ‘Hey, I have news,’ he announced, as he crossed a main road and headed back into the lanes. ‘Mia’s pregnant.’
‘Great,’ said Matthew.
‘Don’t mention it to Mum and Dad – we haven’t had the twelve-week scan yet. It’s still early days. You’re the first person I’ve told.’
‘I’m flattered,’ Matthew said, sounding anything but.
Alex reacted accordingly.
‘You could at least say it like you mean it.’
‘You know I think there’s already too many people in the world.’
‘What, so we can’t have another child because it’s bad for the environment?’
‘You can do what you like. Just don’t expect it to meet with my approval.’
Alex snorted, dropped the car into third, and whipped it round a tight, sharp corner. This was the back way to his parents’ house and he loved to drive it. You had to be a bit careful, this time of day, what with all the locals trolling to and from the shops, but you could still hit it reasonably hard.
‘You know that Caitlin’s staying at our place?’ He shouldn’t have taken pleasure in saying it, but after his brother’s reaction to his previous piece of news it was difficult to resist.
‘What?’
Matthew, Alex noted, was suddenly exhibiting genuine concern.
‘Apparently there’s been some huge family row over the will, and she walked out.’
‘What sort of row?’
‘I don’t know. I only saw her briefly this morning, before I came to get you. She doesn’t seem to want to talk about it.’
Matthew turned his head and glowered out of the passenger window, tracing the outline of a cloud with his finger in the condensation on the glass. Houses flashed past: barn conversions, extended cottages, five- and six-bedroom properties occupied by lawyers, accountants, estate agents, marketing executives, car salesmen, stockbrokers, financial advisers. There were also, intermittently, farms: forlorn and slightly squalid places when compared with their gentrified neighbours, tongues of mud lolling out from their shambolic yards, rotting sheet-metal barns like giant air-raid shelters dwarfing the ill-maintained brick dwellings they overlooked.
‘How’s the documentary going?’ Alex asked, referring to a project he knew Matthew had been working on in his spare time.
‘Slowly. People don’t seem that interested in doing anything.’
‘They want to do things. Just not necessarily your things.’
‘They want to do fuck all. We all do. It’s too late, anyway. We’re going to carry on consuming our way into disaster. We’re on the downward slope now. The planet’s going to burn, and we’re all going to fry.’
‘That’s cheery.’
‘It’s what’s going to happen.’ Where he’d traced the clouds Matthew rubbed the glass clean with the heel of his hand. ‘Will you slow down?’ he snapped as his brother cut a bend finely enough for the tyres to nip the levee of grit on the edge of the verge.
‘Why?’
‘I don’t like people driving too fast.’
‘Would that be because you haven’t got a car?’
‘Just fucking slow down, will you?’
Alex grinned, depressed the accelerator even further and slalomed through his favourite S-bend. Then he lifted up his foot, dropped down a gear, and brought his speed under control.
‘Sorry,’ he said, turning to better stress his lack of sincerity. ‘That last bit doesn’t work if you take it too gently. By the way, I wanted to ask you …’
‘Look out!’
Two horses with riders had swung into view: a girl on a placid piebald pony tagging along behind a young woman on a fine bay stallion. Alex rammed down on the brakes and the car vibrated as its anti-lock mechanisms kicked in. It wasn’t enough: the surface of the lane was scarred by frost and heat and screed with rubble, the tyres couldn’t grip, and inertia forced the vehicle into a skid. It didn’t hit the horses but it did slide past them in a sharp diagonal, only coming to a halt when its wheels banged up against a kerb.
It wasn’t over. The stallion, spooked, pranced and mashed the air with its hoofs. As its rider gripped furiously with her knees it wheeled about and gibbered down at Matthew, trapped white-eyed below it in the passenger seat. Then the pony took fright. Short of sight and dim of hearing, it hadn’t been much affected by the skidding vehicle. But the stallion’s rage was a different matter, and somewhere in its brain there pulsed the thought that it had better follow suit. It was old, though, and fat, and a little arthritic, and prancing hadn’t been within its operational ambit even as a foal. Instead it bucked a bit and backed into the ditch, where it spiked its haunches on a collection of hawthorn splinters left by the last hedge cutter to have passed that way and cantered back in the direction it had come, the twelve-year-old on its back juddering like a solenoid. It was almost funny until she lost her stirrups, dropped the reins and tumbled to the ground, where she lay emitting a long, shrill wail of pain.
By this time the older rider had brought the stallion back under her control. Slipping from the saddle she hurried over to the girl, while behind her Alex and Matthew climbed gingerly from their cockpit.
‘Is she all right?’ Matthew asked.
‘I think so,’ said the instructor, who was comforting the screaming child while feeling up and down her arms for broken bones. ‘No thanks to idiots like you. What in hell do you think you were doing? She could have been killed.’
‘You shouldn’t have a horse like that out walking on the road,’ Alex smirked.
‘What did you say?’
‘What is it, a racehorse? It’s obviously too highly-strung. God knows what damage it’s done to my car.’
‘Well if you hadn’t been driving like a maniac …’
‘I actually wasn’t driving particularly fast.’ He turned to Matthew. ‘Was I?’
Matthew hesitated. The woman was staring at him, demanding a truthful answer, but he could feel his brother’s presence by his side. Suddenly everything seemed to depend on him, on his word.
‘Er, no,’ he said finally. ‘Not really.’ The instructor shook her head, disgusted. ‘Can I help you fetch the horses?’ Matthew asked, ashamed.
‘No. You can piss off. Both of you. Go on. Just piss off.’
They got back in the Porsche, and for the next two miles or so Matthew’s unspoken ‘I told you so’ hung in the air like a rancid fart.
‘I know, I’m an arsehole,’ said Alex, when he could stand the stink no longer.
‘Yes, that’s right, you are.’
‘Thanks for backing me up there though.’
Matthew barely managed a shrug. He wished he understood why he hadn’t sided with the riding instructor, even though he’d wanted to. To take his mind of it he produced a joint from the pocket of his jacket, which he waggled to and fro by the fold of paper at the fatter end as if willing his brother to notice. When Alex said nothing he engaged the cigarette lighter, to emphasise the point.
That did it. ‘I hope you’re not thinking of smoking that in here,’ Alex said.
‘Since when did you get so puritanical?’
‘You know how I feel about that shit.’
‘What, and you and your banker friends aren’t all snurfing coke at all those posh dinner parties you all love so much?’
‘Not my friends. And in any case, there’s no smoking in the car. Of any kind.’
‘Not even the fat cigar that comes with your massive Christmas bonus?’
‘That more than anything.’ The lighter popped up obligingly but Matthew ignored it, sighed, and returned the joint to his pocket. ‘In any case, I should’ve thought you’d have wanted to see Caitlin with a cl
ear head.’
‘That’s precisely the reason I want to get stoned.’
‘I don’t understand you.’
‘You think how you think, I’ll think how I think. Let’s just leave it at that.’
—————
The dogs were waiting in ambush in the hallway: they’d smelt cat before Matthew had even got out of the car. With the first crack of light round the doorframe they sparked into action, Max’s whines coiling out of the slots in his box as Matthew held him just out of their reach.
‘They’re like cartoon crocodiles,’ Alex laughed as the dogs jumped and snapped.
‘You could always give me a hand.’
But Alex preferred to stand there and soak up the spectacle, watching Harry and Pandora continue to rage until Margaret came through from the kitchen and sent them packing with a couple of well-aimed slaps across their backsides.
‘What did you bring the cat for, Matthew?’
‘I’ve only just got back from a trip. I couldn’t leave him on his own again. Not straight away.’
‘You’re going to have to keep it locked in your room.’
‘That’s fine.’
‘It’ll use a dirt box, will it?’
‘It’s a he, Mum. And yes, he will.’
‘Well I hope so. I don’t want to spend the weekend cleaning cat pee off the carpets.’
Matthew scowled and stomped on up the stairs. Ten seconds through the door and already his mother was on his case. Couldn’t she have even said hello? Was it his fault the dogs weren’t properly trained? God knows he’d expended enough energy trying to convince his parents to get someone in to teach them some modicum of obedience, given that his father had no interest in putting in the time himself and his mother did nothing but indulge them. It was typical of their lackadaisical approach to everything, their lack of regard for the consequences of their actions or the feelings of those who might be affected by them. They didn’t communicate, they never had, it was a source of constant amazement to him that they’d actually managed to …