The Geneva Connection

by Martin Bodenham

  “There’ll be a way through this,” he said as he left the boardroom.

  On the drive home, Kent was quiet as he contemplated the reality of losing his firm. A decade’s work down the drain, and a lifetime’s reputation torn to shreds. He might just have accepted this if CBC’s investment performance had been poor, but it was one of the best in the industry. He couldn’t accept the injustice of it all. What made it worse was losing CBC’s investment firepower just when the recession was throwing off great buying opportunities. That morning, he had a large checkbook and an increasing choice of attractive investment deals in the middle of a recession — a buyer’s paradise. He’d never be able to create these ideal conditions again. Grampian had ruined a once-in-a-lifetime situation. Had he been wrong to rely so heavily on them for investment capital? Should he have spent more time on the fundraising road for the third fund and spread the commitments across a wider group of institutional investors? It was too late now, anyway. He couldn’t change that.

  “How serious is this, John?” Sarah asked, breaking into his thoughts.

  “It doesn’t get any worse. The recession means the chances of replacing Grampian’s commitment with other investors today are virtually zero.”

  “But CBC has a great track record.”

  “It doesn’t matter. Most institutional investors are already overcommitted to private equity at the moment. They’re looking to reduce those commitments, not add to them.”

  “I see.”

  “We’re in trouble. This couldn’t have happened at a worse time for us.”

  Kent bought all the main newspapers the next day. They were full of stories covering the failure of the once-prestigious Wall Street financial institution. The company had collapsed without any prior warning. There was no hint of any disproportionate losses accumulating in its insurance division in its last quarterly SEC filing, and the share price had been stable in recent months. Press speculation ran wild with theories, ranging from fraud through to massive mismanagement. The commentators were unanimous in praising the Fed for not bailing out another risk-taking institution. Taxpayers would not accept any more. The fact that the whole market was taken by surprise didn’t make Kent feel any better. He was facing the almost certain failure of CBC.

  The partners spent most of the morning discussing what options they had to rescue the firm. While they knew the market for fundraising was awful, Kent insisted they had to try to generate some new investor interest. He was not going to give up without a fight. He assigned the task to Johnson and Prentis as they had the most relationships in the institutional investor community. They’d know which institutions, if any, had an appetite to make new fund commitments. Although the thought turned his stomach, Kent decided they also had to investigate whether there was any merit in selling CBC to a competing private equity firm. He knew that was likely to be a waste of time; it would always be much cheaper for any competitor to hire those members of the CBC team they wanted rather than buy the whole firm. That’s what he would do if he was in their shoes, but he owed it to all the staff to see if another firm would acquire CBC, even for pennies. He asked Henning to lead the search for possible buyers. If, through some miracle, he managed to hook any interest, Kent would take over the negotiations with the prospective buyer as it would be a messy fistfight.

  The only live deal in the pipeline, likely to be difficult to unwind, was the Henderson Wright transaction being led by Kirkland. They could not continue with the deal now they had no investment funds available. Kent asked Kirkland to meet with Wright to see if there was an elegant exit from the transaction. Maybe they could suggest another private equity firm to replace CBC. Whatever help they offered Wright, Kent expected trouble. He’d just pushed him into accepting a hard deal for his management team.

  Kent spent the rest of the day fielding calls from the financial press and from existing investors. They all wanted to know the same thing: Did the failure of Grampian Capital mean CBC’s future was in jeopardy? He did what he could to put out a strong, positive message, but he knew the failure of the firm was a real prospect, and the press sensed blood. CBC was losing its reputation as each hour passed. It was killing him, and there was little he could do besides stand back and watch it happen.

  The following day, Kent picked up his Financial Daily. Right in the center of the front page of the Companies and Markets section was the headline “Grampian likely to bring down CBC.” There followed a well-researched and intelligently written article on the massive reliance on Grampian Capital by CBC for its investment funds. It went on to address the difficulty of raising new funds in this recessionary climate, even with CBC’s excellent investment track record. The article concluded, in the absence of a new cornerstone investor, CBC would fail in a matter of months. Not far off the mark. A complete disaster. The firm’s demise was about to be played out in public, and he’d become a laughing stock in the industry.

  “Is there anything I can do to help?” asked Tara, stepping into Kent’s office. She brought in his usual coffee and then sat on the arm of his sofa. She was dressed down for the somber occasion, but Kent couldn’t help notice how her red lipstick stood out against the dark suit, making her lips fuller than usual.

  “Thanks, Tara,” he said. “There really isn’t much you can do to help at the moment.”

  “I don’t understand all the technical issues, but it looks pretty bad.”

  “It’s bad, all right. Without Grampian, we have no money to invest. If we don’t find a replacement investor quickly, we’ll have to start winding down the firm soon.”

  Kent’s phone rang. He picked it up.

  “John, it’s Joanna.”

  “How’s it going?” he asked. She’d been down at Henderson Wright all morning and he had been waiting for her call. “I bet Wright didn’t say, ‘thanks for letting me know, maybe next time.’”

  “Not quite. Let’s just say, it’s not going well at all.”

  “So we’re off his Christmas card list?” Kent didn’t care. His firm was going over the cliff. If Wright’s firm went with them, so be it.

  “I’m sorry to pile on more pressure, but he said he’s coming up from London this afternoon to sort this mess out with you face to face. He was livid when I told him we were unable to complete his deal.”

  “Just what I need.”

  “I know. I’ve just left Henderson Wright’s offices and I’m on my way back to the office now. I thought I ought to give you as much advance notice as possible.”

  “Thanks. I’ll alert Chapman to load up his machine gun on the security desk. See you here later.”

  Kent was used to being in control, but for the first time in his life, he sensed events were in control of him. He couldn’t just stand by and watch this slow car crash. He needed to do something. There had to be a way out of this mess. He gazed out of his window toward Cambridge.

  His phone rang again. “Mr. Kent, this is Chapman. I’m sorry to trouble you, but we have a camera crew here at the front desk. They say they’re from the BBC and are asking for an interview. I’ve refused to let them in. Is that okay?”

  “Don’t worry. I’m coming down,” said Kent. He stood up and made his way downstairs.

  He showed the camera crew and the BBC’s business editor into a meeting room on the ground floor and prepared for a mauling. He gave convincing answers to most of their questions, which were mainly about CBC’s ability to survive and what would happen to CBC’s existing portfolio of companies should the firm not make it. For a man with few real answers to these questions, Kent performed well. He gave the impression there were many alternative investors lining up to take the place of Grampian Capital; he wasn’t worried by this inconvenient setback. He knew if he looked as though he’d given up, there’d be no hope of attracting new investors.

  After an hour, he was saved by Tara. “Mr. Wright is in one of the top-floor meeting rooms, waiting to see you,” she said, interrupting the interview. Kent made his apologies and re
turned to his office.

  “Is Joanna back yet?” he asked.

  “Yes. Shall I ask her to join you in your office?”

  “Please.”

  Moments later, Kirkland walked into his office. “I have to tell you Wright is manic. It’s clear he’s a man who likes to get his own way. From what I’ve seen, his own staff members are afraid to stand up to him. I’d say he’s a classic bully.”

  “I’m not surprised to hear that. I already knew he wasn’t liked much within his own firm as I know a number of his partners. They’ve told me the same thing.”

  “How are we going to deal with him?”

  “Leave most of the talking to me,” said Kent. “I’ll handle him.”

  They left his office and walked over to the meeting room where Wright was waiting. His face was red, and he was pacing up and down the room like a trapped animal. He had his lawyer with him, a senior partner from one of the top international law firms in London.

  Kent had not even sat down, when the Henderson Wright lawyer fired the first salvo. “Mr. Kent, your colleague, Ms. Kirkland, has informed my client that you’re unable to complete the transaction set out in your offer letter of two days ago.”

  Kent had plenty of experience in handling condescending lawyers. “Good afternoon to you too,” he said.

  “I have informed my client they’ll be entitled to recover considerable damages from CBC, in the event they suffer loss as a result of your failure to meet your obligations under this contract.”

  “Are you interested at all in hearing why we have a problem?”

  “I don’t give a damn about your problems. You made a formal written offer, which we accepted,” spat Wright. He was leaning against the window, his arms crossed.

  Kent wanted to shove him through it; he’d heard enough. “Our offer letter said the financing was subject to us being satisfied with our due diligence.”

  “And?” asked Wright, placing his hands on his hips, as if to say, “Is that the best you have?”

  “Well, we’re not satisfied.”

  “What the hell are you talking about? You haven’t carried out any due diligence yet,” said Wright, shaking his head.

  “We’ve done enough.”

  “My client would know if you had,” said the lawyer.

  “We started it today, Doug, when you walked into our offices. I decided I don’t like your judgment.”

  “What?” Wright’s face looked as though it was about to explode.

  “Turning up here with your mad-dog lawyer and acting all belligerent shows very poor judgment in my view. It’s not how we expect a CEO of one of our investee companies to act when he’s under pressure.”

  “I object to that, Mr. Kent,” said the lawyer. Kent ignored him. An irrelevant stuffed shirt.

  “If we can’t trust your judgment, there’s no point carrying on with further due diligence. It would be a complete waste of our time and your money. You’ve fallen at the first hurdle, I’m afraid.” Kent smiled.

  “That’s not due diligence,” said the lawyer.

  “We decide what to assess when considering an investment. That’s why we’re investors and you’re just a lawyer. Now, gentlemen, we’re busy here. I think we’ve completed our business.”

  Kent stood up, offered no handshake, and left the meeting room. Kirkland followed. Her jaw was still open in awe.

  One week after the BBC interview, Kent was sitting in his office reviewing his firm’s latest quarterly return for the FSA. The draft return had been prepared by Kevin Long, the most junior CBC partner and compliance officer. Long had suggested Kent might want to write a covering letter to update the FSA on the financial state of CBC. He’d reminded Kent that the FSA’s rules required an open and transparent dialogue with the regulator. Kent thought this was a good idea; the market was now alert to CBC’s situation so it would be wrong not to explain the details to the FSA. It was also right that Kent, as the CEO, should write the letter.

  His phone rang. It was Tara. “I have a Mr. Baumgart for you. He wants to talk about our fundraising plans,” she said.

  “Thanks. Put him through,” he replied.

  Kent was now becoming pissed off with these inquiries. In normal circumstances, CBC might have expected one or two calls a month from potential investors. Since CBC’s troubles had hit the press, however, the firm had received several calls a day. The problem was all of them had been secondary investors looking for a bargain. Kent had seen these vultures rise in prominence during the recession. They waited for large institutional investors, like Grampian, to run into financial difficulty so they could buy their fund investments at a large discount. For easing the existing investor’s liquidity pain, secondary investors would normally enjoy discounts of between fifty and seventy per cent on the assets they were able to buy. He quietly admired these opportunists, but they were of little direct value to him. CBC’s stock response was to request them to call Grampian Capital directly, as the dialogue needed to be between buyer and seller and not CBC as fund manager.

  Kent dropped his shoulders and prepared for another waste of time. “Good afternoon. John Kent speaking.”

  “Good afternoon, Mr. Kent. My name is Dieter Baumgart and I’m calling from Geneva, Switzerland. I understand you are fundraising.”

  “Yes. That’s correct. We’re in the market for new investment capital.”

  “I represent a multifamily investment office called Tritona. I’d appreciate a meeting to explore a potential investment commitment on our part.”

  “I’d be delighted to meet you.”

  This doesn’t sound like a secondary investor, Kent thought.

  “How much are you looking to raise?” Baumgart asked.

  “Between five and seven and a half billion pounds.” Kent was making this up as he went along. He had nothing to lose, so he decided to go for the full amount CBC had lost from Grampian.

  “Okay. Those amounts are well within our investment criteria. I’ll ask my assistant to liaise with your PA to arrange a meeting. I assume you’re happy to come over here for our initial meeting?”

  “Yes, of course.” Kent realized the fundraising was unlikely to succeed, but he had to exhaust all options; his firm’s survival was on the line. “In the meantime, I’ll have our fundraising document e-mailed over to you. I look forward to meeting you.”

  “Perfect. I shall look forward to the meeting. I’ll have my assistant join me to capture some notes of our discussion. I trust you’ll do the same?”

  “Of course,” said Kent, automatically, but immediately thinking it was a slightly odd request. Must be a cultural difference.

  “Goodbye, Mr. Kent.”

  Tara brought in Kent’s usual coffee. “Any good?” she asked.

  “What? The coffee?” He smiled.

  “No. The investor. He called a couple of times this morning and seemed keen. I offered to take a message, but he chose not to and would only speak to you.”

  “I don’t hold much hope, but he seemed interested in our fundraising. You’ll be able to judge for yourself, anyway.”

  “How’s that?” Tara slanted her head to one side.

  “You’ll be coming with me to Geneva to meet them.”

  “That’s unusual, isn’t it?”

  “It is, but he seemed keen to have personal assistants attend the meeting to take notes. I’m not quite sure why it’s necessary. It all seems a bit over the top to me.”

  “At least I’ll get to see Switzerland. I’ve not been there before. What are the airport shops like?”

  Chapter Twelve

  Jivaro chose Isla Tiburon for his head office location because of its isolation in the middle of the Gulf of California, off Mexico’s west coast. There were no roads to speak of, and the only practical way into the interior of the island was by helicopter. It took two years to build his underground fortress, complete with its own power supply, sleeping quarters and water desalination plant. The total build cost was one point two b
illion dollars.

  Everything happened underground. The only thing visible from the air was a cream-colored, concrete-block hut about the size of a basketball court. There was nothing to indicate what sat beneath the earth. No cars, no people; in fact, no signs of human life for miles around.

  The red desert below was sparsely punctuated by green clumps of gorse. Sand flew everywhere when the helicopter came in to land, shrouding the four men as they climbed out. They entered the building, passing three other men coming out on their way to the helicopter. Jivaro did not allow the aircraft to hang around. He didn’t want to draw unnecessary attention.

  Once inside, the four men took an elevator down into the main building. The one dressed in the smart suit got off at the third floor. The doors opened up into what looked like a NASA control room with at least thirty men and women at computer terminals. The pace of work was intense. There was little conversation between the employees. The dominant noise was of clicking keyboards. He scanned the room as though he was looking for someone.

  “Welcome to head office, Arturo. I’ll have your bags taken to your room. Please leave them here,” said Raul Safuentes as he came over to greet Vargas. They shook hands. “I trust you had a good flight?”

  Vargas had taken one of the cartel’s private jets for the two hour flight from Monterrey to Hermosillo and from there he flew by helicopter to Isla Tiburon. The cartel owned a helicopter charter business in Hermosillo. Its main function was to ferry cartel members back and forward to the island. Jivaro decided long ago it was small price to pay for the isolation and protection afforded by the island.

  “A relaxing journey, thanks. I’m keen to get started.”

  “Good. Let me show you around.” Safuentes led Vargas over to one of the terminals.

  “This floor is the financial heart of the organization. Each one of these screens gives the operator access to certain limited aspects of our business. For example, one operator might be monitoring our cash movements over the US border. Another may be handling the electronic cash deposit records you have been sending in from Corolla, while another, more senior, operator will be reconciling these amounts and accounting for any differences on a daily basis.”