Shadow Banking

by C. M. Albright

  ‘Sure.’

  ‘Anyway, let’s forget it. It’s just good to see you again. I kind of missed you.’

  This was too much for Krystina who found the need to react to all moments of high emotion with some physical expression. She took Miles’s hand in her left hand and Al’s hand in her right and squeezed them, smiling at both of them in turn.

  ‘Thanks Al,’ said Miles.

  They smiled at each other and then looked away quickly. Al couldn’t face the prospect of Miles trying to manipulate the conversation so that he could talk to Al about business. So, he let him off the hook. He deliberately made it sound blatant, almost like a joke. It was easier that way.

  ‘So, Miles, you got any business for me?’

  Miles chuckled, clearly relieved.

  ‘Only if you want to do business with me.’

  ‘I’d love to. Be like old times.’

  They agreed to talk on the phone the next day, allowing them to steer the conversation back to reminiscences of days gone by and the inevitable Fergal stories. Al asked Miles about his life in Switzerland. As he listened to Miles talking about his private plane and pilot’s license, the house on the Dolder in Zurich and the place that he was thinking of buying in St Moritz, he couldn’t avoid a nagging sense of jealousy. He had always felt a sense of competitiveness with Miles but that had gone by the wayside. There was no point competing with Miles anymore. Whatever competition had taken place between them, Miles was clearly the winner. Their career trajectories had diverged. While Miles’s had become stratospheric, his own had stalled and now he felt trapped. His base salary was a hundred grand and with all his bonuses he was bringing in about half a million. With all his hefty outgoings – Krystina’s monthly food and beverage spend was two and a half grand alone – he was nursing a painful overdraft. Deep down, he knew that he wasn’t the only one at the table who was consumed with self-interest. If he had more capital behind him, he could have afforded to take a less conciliatory approach to Miles’s entreaty but as it was, he couldn’t.

  By the time Miles had paid the bill and they had made it out onto the pavement in Berkeley Square, the saké had given them all a warm glow.

  ‘It’s great to have you back in my life,’ Miles said to him. ‘I’ve always thought of you as my best friend.’ Al had never heard him be so open with his affection. It made him feel embarrassed but it also made him feel good. Miles was a one-off. There was something otherworldly about him. He was brilliant at what he did and his seemingly unerring intuition about people and situations meant that when he claimed Al as his best friend, Al couldn’t help but feel flattered. Al hugged him. They had never hugged before in all the years they had known each other. Krystina watched them, smiling.

  ‘I love you, man,’ said Al clapping Miles on the back. As they disengaged, Krystina stepped forward and kissed Miles on both cheeks and then hugged him.

  ‘Great to see you, Miles. Let’s do it again soon.’

  They said their goodbyes and climbed into their respective taxis. Krystina was moved by the reunion. In the taxi on the way home, she fired questions at Al about Miles. He answered them on auto-pilot thinking as he did so about what it would mean, having Miles Ratner back in his life, and enjoying the curious feeling of excitement that came with it.

  Dow Jones Index: 10109

  USD/MXN: 11.375

  USD/JPY 25 delta risk reversal: -0.9

  ‘I need you to buy two billion Euros at best versus dollars,’ said Miles when he called Al the following morning at eight o’clock. Miles made no concession to small talk or pleasantries other than to say, ‘It was good to see you and Krystina last night.’

  ‘How long have I got?’ asked Al.

  ‘I dunno, half an hour? This order is only with you.’ The line went dead and Al couldn’t help but smile to himself at Miles’s abruptness. From telling him that he was his best friend to putting the phone down on him without saying goodbye, all in twelve hours. But he wouldn’t give it another thought. There were more important things to be done. Al marched around to talk to Guy, head trader on the spot desk, responsible for the euro book. As Guy turned and looked up at him, Al leaned forward and said, ‘New client, Aden Partners, want to buy two yards of Euros at best.’

  Guy, an unflappable Londoner, looked at Al and said, ‘Are you sure?’

  ‘It gets better. I’ve got to give him the fill in half an hour.’

  ‘Just to be clear, you want to pay me for two billion Euros in thirty minutes time at the rate of my choice?’

  Al smiled. ‘Well, not quite your choice but basically, go nuts.’ Al took half a step backwards and prepared to watch a master at work while making a note of the level of euro-dollar: 1.2615.

  Guy stood up and quietly instructed the other spot traders to ‘Leave the euro alone.’ Even as he was sitting down, his hand reached for the electronic trading pad and he started to buy Euros. It was something that Al had come to notice over the years that when a trader was transacting in a slow controlled fashion, their movements mirrored their style of execution. They were slow and purposeful. When they were being more aggressive, keyboards were hammered, phones grabbed and broker lines were jabbed. At this early stage, Guy’s fingers caressed the keys, barely seeming to touch them as he accumulated Euros. He picked up the phone handset: ‘Twenty bid regular.’

  Six minutes and 450 million Euros later, euro-dollar spot started to climb higher. Al could feel the atmosphere in the room change. Something was going on. The spot desk was too quiet. Al could sense Guy moving up a gear, increasing the pace of buying. Al watched the euro go thirty paid.

  ‘OK,’ said Guy, ‘we’re through a billion now.’ Guy turned to the inquiring faces all around and said, ‘I’m buying a yard plus Euros for Al. I’m still at risk but I don’t want it out yet, OK?’

  Al smiled at Guy knowingly. There wasn’t a salesman on the planet who wouldn’t tell their best client that the market was going up. Over the next three minutes, Guy bought 500 million Euros at an average of 37 as the market traded to a 45 high. Guy winked at Al as he leaned forward and called an unknown code on the Reuters dealing machine. It was picked up instantly with a prompt, ‘Hi Guy.’ Al watched as Guy typed, ‘Eur 250 yrs fast.’

  Al watched Guy with increasing admiration. Guy knew that the market was piggy-backing his order getting long with the flow as the price rose. Guy had ramped the market to drag in the flotters, traders who did little else than try to ride someone else’s order, before getting a contact at a small bank in continental Europe to ‘smack the granny’ out of the euro, squeezing all the longs that were getting a free ride of the Hartmann flow. Over the next two minutes, euro-dollar dumped to a low of 25 filling all the bids that Guy had conveniently placed.

  With twenty minutes gone, Guy had bought 1.5 billion Euros. The market had no idea whether he had more to do. Al could almost feel the participants take a pause for breath before Guy pounced, aggressively buying the euro, driving it up through the previous highs.

  Guy turned to Al. ‘All filled. Two secs for the rate.’

  Twenty-eight and a half minutes after they had last spoken, Al called Miles back.

  ‘You’re done.’

  ‘Thanks Al. I knew you would do well. It’s great to be back in touch.’

  ‘Yeah, agreed.’ Al tried to sound deadpan but the adrenalin that had been coursing through his veins for the past twenty-nine minutes was making that difficult. ‘I’ll have the price for you in just one sec.’

  Al muted the phone as Guy called across to him, ‘OK, we started at 15, the high was 51, and my average is 27.’

  Al looked at Guy – brilliant.

  ‘1.26395.’

  ‘Excellent,’ said Miles. ‘Great job. Speak soon.’

  And that was it. It was the fastest money Al had ever made. Yet there was something that rankled with him, something that didn’t feel quite right. It wasn’t having Miles as a client, that would never bother him. It was rather that Miles had put th
is deal his way, not because he was necessarily the best man to carry it out, but rather because he was setting him up for something. It was like a favour. Miles was helping him out. And what – Al couldn’t help but think about – would Miles want in return?

  ‘Have you got something to tell me, Al?’

  He looked up to see Melody watching him as she walked past the desk, immaculately upholstered in Gucci and enshrouded in her very own micro-climate of Miss Dior. Al had learned since their ill-fated far east trip to respond to Melody’s conversational openers with something as non-committal as possible. But this, however, was something that he was going to relish.

  ‘Just made 2.5 million on Aden Partners.’

  It was enough to stop her in her Jimmy Choos. She smiled at Al in that self-satisfied condescending way that he found so annoying. She moved towards him, looking for all the world as though she might at any moment pat him on the head. Instead of that, she kissed him on the cheek, but to Al, it felt the same.

  ‘My hero,’ she whispered into his ear before she walked off, confident that Al would watch her as she did so. And Al did because as much as he found Melody’s behaviour towards him dispiriting, indicative he felt of the esteem in which he was held by senior management, he couldn’t help but enjoy her approval.

  It was a long time since he had felt like this. He liked the feeling. He felt like a player again.

  26 Another Seduction

  USD/CNY: 8.2768

  3m EUR/USD ATM vol: 10.2

  US Treasury 2y-10y spread: 1.798%

  ‘Thanks Boris. It’s a good fit putting me together with Artem.’

  ‘I agree, Miles. The compatibility was very clear. You’re an impressive individual, as is Artem. I’ve got a very good feeling about this.’

  Despite the convivial surroundings and all the self-congratulation, Miles felt anything but relaxed. This was not a social visit. The Count’s seventeenth century villa overlooking Lake Como had to be one of the top five houses he had ever been in in terms of its setting and charm. As for the Count, he was a man who Miles felt genuine respect for. Here was a man who had inherited great wealth and social standing but hadn’t allowed that to make him complacent. He had pursued his business interests like a man with something to prove. Just as Miles himself had. When he had heard that the Count was due to spend a few days on Lake Como, he had engineered an invitation to drop by, eager to speak to him alone.

  So, here he was sitting in the Count’s exquisitely appointed drawing room, preparing himself for a trade – of sorts. What he was after was information, although what exactly, he wasn’t sure.

  ‘Shall I open another bottle?’ asked the Count, standing up.

  ‘What a good idea.’

  ‘Oh good, I’ve got one I know you’ll like.’

  The Count made his way towards the drinks cabinet. This was as good a moment as any to try and steer the conversation around to the nature of the fund and its history.

  ‘So, how did you first become involved with Aden Partners?’

  To Miles’s ears, it came out sounding loaded with nefarious sub-text but he realised straight away that this was just his own conscience amplifying his fears. As the Count poured two glasses of wine and returned to where they were sitting in a large bay window overlooking the gardens and the still waters of Lake Como, he smiled as a fond recollection came to him.

  ‘Artem Ilyich Babich and I went to school together.’ Using Babich’s full name hinted at a friendship and intimacy every bit as much as if the Count had used a childhood nickname. Miles knew that the Count and Babich went way back but didn’t know they were at the same school. Immediately, Miles considered why he wasn’t party to this knowledge before it struck him that this was most probably due to his incomplete knowledge of the fund and the air of mystery that swathed it.

  ‘I wasn’t aware of that,’ said Miles but the Count wasn’t listening, becoming seemingly lost in a reverie of nostalgia.

  ‘I once saved his life,’ said the Count. ‘Did he tell you?’

  ‘No,’ said Miles, taking a sip of the wine, a spectacular Californian Merlot from a vineyard in Napa belonging to the Count.

  ‘We were fishing on the Danube near the Black Sea. My parents had a place out there that we used to visit in the summer holidays. Artem’s father had just died – terribly sad – and he came on holiday with us for a couple of weeks whilst his mother was grieving. We were only about ten or so but I managed to persuade my parents to let us go out in a little rowing boat just in front of the house which overlooked the Danube Delta. Beautiful scenery around there. Anyway, we were fishing from this little wooden rowing boat. I was obsessed with catching a big pike, of which there are many in that part of the world, but sadly we got more than we’d bargained for because in the Danube Delta there are also huge catfish. It was one of these monsters that poor Artem managed to snag. It was about four feet long, this thing, and we were obviously hugely excited to have hooked into this beast. And Artem, I was so pleased for him after all that had gone on with his father dying and everything, he was determined to land this thing and made the fatal mistake of standing up in the boat. As he did so, he managed to lose his footing and ended up in the Danube connected to four feet of angry catfish.’

  The Count chuckled to himself as he reminisced before becoming more serious once again. ‘He thrashed around a bit – never was a great swimmer – and even went under a couple of times but I managed to grab hold of him and pull him back into the boat. He was scared witless. Poor bugger. As for the catfish, God knows what happened to him. I couldn’t help but think about him swimming away connected to a rod and reel. I suppose he would have got free. Huge great thing he was.’

  The Count’s mellifluous voice had soothed Miles so that when the question came from out of the blue, it caught him off guard. ‘So, how are things at Aden?’

  ‘Good.’

  ‘Excellent.’

  The Count watched him, waiting for him to speak. But Miles remained silent, taking a leisurely sip of his wine, pretending to savour its complexity.

  ‘I’m aware that you’re accumulating assets at an enormous rate,’ said the Count in a soft voice.

  Miles watched the Count. How much did he know? He might have been a close family friend of Artem’s – might even have saved his life – but he was still an investor. He was on the other side of the counter. The Count nodded his head as he continued to watch Miles.

  ‘What do you really feel about structured credit?’

  Miles realised two things. Firstly, the Count was as clever as his reputation suggested and secondly he was going to find out nothing about Aden Partners from this conversation.

  ‘I think the quality of the deals will deteriorate rapidly as more people who don’t know what they’re doing get involved. Clearly, it’s going to be an enormous problem in the future.’

  ‘And in the short term?’

  ‘You buy the shit out of it.’

  ‘That’s what my gut tells me too. Do you think that Roger Ellwood is constructing the portfolio with those views in mind?’

  ‘I don’t know.’

  ‘If it was down to you, Miles, what would you do?’

  ‘I’d try to own the most liquid things I could find. As always in a market like this, getting in is the easy part but the real skill is in getting out.’

  ‘I couldn’t agree with you more but I’m afraid to say Miles, just between you and me, I don’t think that is what Roger is doing.’

  Miles was on red alert – how much did this guy know? The Count caught Miles’s eye for a moment. He was about to speak when something stopped him and he plastered a big grin on his face and said, ‘Come on, let me show you my new little toy,’ and the conversation was at an end.

  The Count led Miles down to the boathouse to show him his Aqua Riva wooden speed boat. Miles made the right noises – it was a superb boat – but his mind was elsewhere. He was tired of thinking of Aden Partners and Roger Ellwood’s structured
credit. His thoughts had turned to the woman who was on her way to visit him. He thought about her in the hotel room in Milan, showering, towelling herself dry and choosing her clothes before sliding her lithe body into them. He thought about her going downstairs to the lobby where she would be met by his driver who would show her to the Bentley. Miles wondered whether she would feel nervous about her impending meeting with him and hoped that she would. Just a little. Nervous and excited. Just as he was. He thought of her sitting in the back of the Bentley on the journey up from Milan to Lugano where he would meet her in a few hours. Would she enjoy the smell of the Bentley’s interior as much as he did? What would she think of a man for whom this was just a routine component of his life?

  Nasdaq: 1775

  EUR/USD: 1.236

  Brent Crude Oil: 39.5

  As the Bentley came to a halt outside the Hotel Splendide in Lugano, Miles was there to open the door.

  ‘Krystina, great to see you.’

  She stepped out of the car and kissed him three times, twice on the right cheek and once on the left.

  ‘Great to see you too, Miles. How was Lake Como?’

  ‘It was good, thanks.’

  ‘It’s just so perfect there,’ said Krystina as Miles took her bag from the driver and they walked towards the lobby doors. ‘But here is just as inspiring. I adore the lakes.’

  This was the first time that Miles had ever been alone in Krystina’s company. Every other time they had ever met, there were friends, girlfriends and wives. It felt strange to be walking next to her. As the door swung shut after them and they made their way across the marble floor to the reception desk, Miles allowed himself a deep lungful of her scent. She smelt fabulous and he loved the way she looked as though she had just stepped from the pages of a fashion magazine, as though a team of stylists had just that moment finished working on her. And her body, the power and the threat of its ever-present allure, was something that he was more conscious of than ever. All those thoughts and fantasies that he had wrestled with for so long were made flesh and standing next to him now as she checked in her overnight case into left luggage.