by John Gubert
We now needed to think of bursting the bubble. It ran for another week without showing signs of slowing down. My father told United we did not want the fund to grow any further although they tried to get him to do so. We knew they were putting all their clients into our shares.
There were still enough buyers around to have sold the shares at a profit. But that would not serve our purpose. The portfolio was worth an alleged one point five billion by now and so their loan was apparently covered around three times.
“This is crazy,” said Jacqui. “I can’t believe the markets are so stupid.”
I had been doing the accounts and liquidating our shares in our other funds at the same time. When the news came, all the markets would fall. There was no benefit at the moment in holding quoted shares. “We have actually made a two hundred and eighty million all told on the other funds as well this month,” I said. “That was the last of our holdings I just sold at another profit.”
“That wasn’t difficult,” said my father. “After all you held shares in a rising market.”
“It’s still a profit,” I said. “We are closing in on a net worth of around four billion all told.”
We now started to try to burst the bubble, but we did not need to. It all started to go badly wrong when the Iraqis confiscated all the assets of the mining company. There was outcry. There was no logic in that reaction as the assets were just strips of sand. But at the time nobody knew that for a fact.
There were rumours that the company in oil exploration was a fraud. The fund tried to sell at market as if in a panic. The shares sunk like a stone. Over the weekend the press was universally bearish. There would be a run on the fund. They were the biggest of the investors in a portfolio of speculative shares. Its holdings were all going through the floor. We made as if to calm United Bank. We said it was just a hiccup. They were looking worried. I suspected they had more clients than we had thought with stock that now was worth much less than they had paid. The cover on the loan had halved. They no doubt studied the loan agreements and regretted the clauses that stopped them from getting repayment other than from the sale of shares in the fund.
We fuelled rumours of forced sales by the fund at the insistence of their bankers. Wall Street fell sharply on fears of market unrest. The markets were uneasy. Our companies fell through the floor. Panic bred panic yet again. The bulls became bears. The buyers became sellers. The fund was now worth only three hundred million.
We started rumours of other hedge funds with big positions bought on margin. We said those funds were rumoured to be close to bankruptcy. In the state of near panic that then existed in the market, they believed the news. Bad news was received without question. The market was falling. Bad news was needed. We invented some more stories. Some were laughable. Others were simply outrageous. No sane person would have believed half of them. But the market was falling and keen to fall further. So they believed the rumours.
And, all the time, we sold stock we did not own into this falling market. Then we bought it back at a lower price after the market had fallen further. We ran the market. We were like a casino owner with a rigged roulette table. There was only one thing we could do. Make money. And then more money as our success bred credibility. The markets listened to us. We were the masters. We had big money. We had to have connections. And nobody knew the link between us and the mystery fund that was the source of all the market unrest. The whole illogical fabric of the markets played into our hands.
Then there was announcement that one of the fund’s companies had been suspended from its local stock exchange. It was a distributor in Latin America, and the rumours that it was about to get some major concessions had been denied. Its shares were now worthless. The others carried on in free fall. One or two were below the prices we had seen when we had bought first of all for our own account. Another of the shares was suspended in its local market. Another slumped to nothing when its Chairman was arrested on suspicion of fraud. The fund was worth seventeen million dollars.
My father called for a crisis meeting with United. They were sitting on a loan of five hundred and fifty million secured by assets worth a fraction of that amount. And this was a bank we thought had already lost a billion in the last quarter in Asia. They knew we had taken profits. They wanted to be bailed out. They asked us to do just that. They appealed to our sense of fair play. They insinuated that we had acted wrongly.
We treated that suggestion with the contempt it deserved. We knew we had screwed them. But they were big boys. They were a bank after all. They knew the rules. We declared that some of our clients had made money. Others had lost. They had lost. That was life. They had to grow up. They did not realise how much we had made out of the ramp. They were not to know the value of the warehousing operations that had provided the original money for the fund.
They tried to play tough. We played tougher. They tried to scare us. We scared them. We pretended to be shocked by their approach. They could not handle that. We lectured them on integrity. We reminded them of the confidentiality clauses in our agreements. We reminded them that Swiss law protected that. They squirmed. We asked to see their Chairman. They withdrew all accusations.
We said we would liquidate the fund in the market. Alternatively we would give them the assets. They asked for the latter in the hope that they could recover some of their losses. It was a forlorn hope. But they could only clutch at straws.
We sat down to assess our situation. Our financial position had improved slightly. We each had just over a billion in our two main accounts. The joint account had now grown to just over two billion.
We guessed that United had lost around a billion to a billion and a half. That would mean that they would post a loss for the year of around a billion dollars. They were a broadly based bank, but their capital would be halved by the losses. They would see their reputation in tatters and their share price would slump. Anyone with a large investment management business was being hit. And United’s was larger than most.
We again started our rumour mills. We then came out of the shadows and re-adopted our public role in our other funds. We had been so uncannily accurate in the past that everyone believed us immediately. We asked if it was true that United had taken a bath in Asia on currency options. We indicated that we were gaining clients from United who had put them into speculative stocks at the top of the market. We started rumours about United having burnt their fingers in the stock market.
By the end of the week the rumours had gained such momentum that United were forced to act. The announcement was sombre. United would make losses of one point four billion dollars for the year. They had lost eight hundred million in Asia as a result of the market volatility and six hundred million on unauthorised lending against securities. That had to refer to the fund, but not to my father. We had got them to sign that confidentiality agreement at the outset. Revealing his name to the market meant they would pay a penalty equal to their lending to the fund. And they would break Swiss secrecy laws. That meant our name and links had to remain confidential or they were liable for another five hundred million dollars and more.
Their share price slumped. The press queried if they could survive. The Liechtenstein authorities, for that was the head office of the holding company, issued a nervous statement. In the countries where United operated, everyone protested that they were not the regulator. It was Liechtenstein. And they did not know what was hitting them.
The share price was down by a third. My father said laconically, “Now let’s put the buggers into play.”
The value of United had now slumped to three point five billion. They badly needed an injection of funds. They continued to fall as we quickly accumulated shares through various funds and companies. We bought as the market fell. It was amazingly easy to accumulate a holding.
The next week United carried on falling and we carried on buying. Then on the Wednesday, we put out an announcement. “ Italian American Associates advise that they have acquired t
wenty nine point nine per cent of United Bank of Europe and will be seeking to open discussions with a view to facilitating a re-capitalisation of the bank and changes to its management structure. Italian American believe that United has a sound business and is keen to help it expand in a prudent manner.” The announcement explained that Italian American was a group of interests and mentioned my name and also Jacqui’s. The presence of Di Maglio’s name raised some interest. There was speculation about regulatory concern.
The impact on United’s share price was astronomical. It jumped forty per cent before being suspended by the market authorities pending clarification. We talked to the regulators. They queried our record. We advised of our hedge fund activities. They were hardly keen but the prospect of ridding themselves of a problem definitely made them flexible in their approach.
I took a call. It was Associated Financial in London. The big financial conglomerate was keen to talk off the record about United. I suggested we met. A meeting was scheduled for the next lunchtime. It would be in their offices in London. I alone would attend.
The next morning saw me whisk through customs and into the waiting car from Associated. Their offices were in the centre of the city in a prestigious block, recently refurbished at some expense. The plush carpets and the modern art around the walls were testimony to the fact that they had recently moved upmarket into investment banking.
Sir Piers Rupert-Jones was a throwback from the old school. He was a clearing banker who had found himself at the helm of Associated after all the other directors found they hated each other. It wasn’t that he was liked or particularly respected, it was that he was not hated. He had one additional advantage. Every other member of the board thought that he was stupid and could be influenced by them. That had propelled him to the chair as all the board bickered at the last succession.
He was blunt to the extreme. “We are interested in United. The regulators will not be happy with your bid. The origins of your money are too vague. You are seen as speculators. You are hedge fund operators. We are willing to buy you out and bid for United. My purpose is to establish your price.”
“We are not interested in doing a deal, Sir Piers. This is a change in focus for us. We are now moving out of the hedge fund market into a more stable environment.”
“Look people like you will be bored to death by United. We run companies like them. We have the right people. You people are in your twenties and thirties. Our people are in their fifties. You need grey hairs to run United.”
I was rude to the extreme. “But you need balls to buy a stake on the way down.”
He frowned. “Perhaps. You beat us to it. It was not that we did not consider the prospect.”
“What would you offer? I should at least advise my associates.”
“Your stake is worth around one point two billion at today’s price. We’ll pay you a ten per cent premium.”
“No way. I would only take back an offer at around one point eight.”
“What about one point five?”
“I think you misheard me. I said one point eight. That’s the base line.”
“If we said somewhere between, what else would you want?” asked Sir Piers.
“Perhaps a couple of favours?”
“Name them.”
“Some time ago, last year, you had an employee called John Ryder.”
“I remember him. The shit rooked us for a billion. They almost got him in Brazil. I thought he had been killed by the drug cartel in Colombia or something. We had to keep it quiet as it could have hit confidence. It was a hell of a job downplaying it in the papers. We got our money back from the insurers though.”
“I don’t think you can assume he’s dead. I want his freedom. Then, if he’s alive, he can come out into the open.”
“What’s the link?”
“That’s irrelevant. I want his freedom.”
“OK. But the insurers lost a billion on that deal and they will want to be repaid. We can give indemnity from prosecution by ourselves but no more. I think he is still wanted elsewhere by the police. Sell for eight hundred million and his freedom. That way we pay your price and get back our billion.”
I thought the bastard was not as stupid as they make out. But guessed this was an opening bid. “I could propose it. It’s a bit low though. I doubt my associates will be too keen. If you can go higher, there may be an interest. What are the conditions?”
He thought. “Can we take an hour out? I need to talk with my colleagues.”
I agreed. He headed out. Someone bought me a coffee. I took a newspaper and waited.
About an hour later, he returned. “We want to know your connection with Ryder.”
“His father and mine were great friends. We owe him a favour and want his freedom. He’s a good man.”
“He’s a thieving shit. He cost us a billion.”
“You are talking of a claw back through this deal. Or at least you’ll claw back a decent chunk of it. But the acquisition is also going to make you some; so you should end up in the money.”
“Look, the reality is that we can’t get him off the hook.”
“Can’t you advise that you goofed and he was not the person who took you for the money? If we provided you with new evidence, could you say that the culprit was the other guy – the one you fired for incompetence at the time?”
“But,” said Sir Piers, “If we do that, he will be at us with hammer and tongs. His name was Jim someone or other. So we need a way to shut him up. How will we be able to persuade him to be the fall guy? He may be broke and susceptible to an offer.”
“He’ll not be a problem tomorrow.”
“OK, then our deal is we’ll let Ryder off the hook for the billion if we can blame it on Jim. But how will you do that?”
“I’ll persuade him to take the rap. Money really does talk. But I want one point three from you.”
“One point two.”
“OK. Done,” I said.
“How are you going to silence that Jim? That’s a precondition.”
“We’ll meet tomorrow morning and discuss that.”
We shook hands and I left. That afternoon I talked to my father. He was overjoyed.
“So they bought. What about Jim?”
He knew where he lived. He even had his address. He gave it to me. I called Di Maglio. He was willing to help. Contract work was up his street. “I’ll send over a girl,” he said. “It’ll be Maria. It will be the one who ran the boat with Claire in Barbados. She will meet you at nine tonight. Where do you suggest?”
We met in a pub near the park. Maria kissed me on the lips. “You’ve got a job for me. Tell me all about it.”
That evening, someone broke into Jim’s flat. He was not a pretty sight afterwards. He was less so when the night was over. He was not going to complain because he was past complaining. But more importantly, there were some documents left in the flat that showed he had stolen money from Associated Financial and now it looked, from the large open safe, as if he had been robbed himself. He was a victim in the total sense of the word.
That night Maria came to my hotel and we made love again. She seemed to have a greater need than me. “Last time, you were the killer and needed it. This time it was me. It’s not warped. It’s just that there is a void afterwards. And sex fills it. All the girls feel it. And some of the men do as well.”
The news the next day was full of the brutal murder. The police thought it was sexually motivated. The body indicated a violent and brutal death. The important thing was that Jim would not query any actions taken by Associated. And there was evidence to show he had robbed them and not Ryder as had been believed. The papers wondered where Ryder was and assumed he had been killed. He became a victim of human error!
I returned the next day. Sir Piers was white. “I didn’t mean that.”
“Bullshit. You knew there was only one safe method of assuring his silence. The police have the papers that implicate him. Now what can you do about
Ryder?”
“I have no intention of dealing with you any more. You are beyond the pale.”
“You have no choice. If you don’t complete this deal, you will be associated with the murder. We have the letters you wrote to the poor sod and we can show the killing was a contract job, especially the recording of yesterday’s meeting. I think I forgot to say that I was wearing a wire. And I have experts who know how to manage the recording. Oh, and by the way, there is one letter on your letterhead that you won’t have in your files. It’s the one that threatens Jim if he doesn’t shut up. It’s personally signed by you and the signature is genuine.”
“But that’s a forgery and that’s blackmail,” he said.
“That’s your belief. It may not be mine and it may not be the police’s,” I said.
He glared at me. Then his face sagged. He knew he had no choice. His voice was cracked and trembling when he spoke again.
“We will advise that the accusations against Ryder were all a big mistake. Jim will have done the fraud and set up Ryder. And the papers found on Jim prove that. But Ryder’s departure at the same time as the fraud made us suspect him. We will say he was under stress and went away to get a rest. And that we now understand he panicked when he heard he was wanted. And then just fled. He will be cited as an innocent victim. It’s hardly credible. But it won’t get much attention other than for the first week or so. So it should work. By the way where is he?”
“You do your bit and leave me to worry about his whereabouts. Oh, by the way, would you like some documents we have on some of your stock exchange trades?”
He went pale again. “What the hell do you mean?”
“We thought you’d be amused by your number four account statements between 1994 and 1998. Especially those relating to the period before you did your take-over in America. You know, the time when the market was surprised by the bid.”
“You have those?”
“Sure, and a whole load of affidavits with them. But they are safe and will remain so. That is as long as you do not double cross us. If you do, I guess we’ll be together behind bars.”