by David Enrich
Like Hayes’s teachers from a decade earlier, Cryan found that the young trader could be combustible. The slightest provocation—a real or perceived slight, for example—would set him off. Cryan quickly learned that there was no point trying to argue with Hayes about the wisdom of trades or the accuracy of data. When Hayes was in one of his moods, Cryan would let him rant and rave, turning down the volume on his phone so he didn’t have to listen. He would wait out the storm and call him out on his bad behavior the next day after he’d calmed down. Hayes typically would apologize and promise to make it up to the broker.
Despite his qualms about Hayes’s personality, Cryan respected his chops as a trader, albeit a relatively green one. His ability to spot patterns was stunning. His grasp of tricky market phenomena was equally impressive. And for all his flaws, he seemed trustworthy. He was just very, very intense.
Hayes also was introduced to a parade of brokers at a much smaller London firm, RP Martin. RP Martin was an insular, tightknit outfit. Its CEO, David Caplin, ran the place with close attention to details large and small. He was universally known as “Mustard,” a nickname that stemmed from his early days as a broker. (Back in the 1980s, senior colleagues had described his eager attitude as “keen as mustard.”) Balding, with blue eyes and an impish smile, he often retired to the local pub with his workers to engage in foul-mouthed banter and name-calling. Such was the culture Mustard instilled at his firm.
One of the first people Hayes met at RP Martin was Lee Aaron. His nickname was “Village,” shorthand for “Village Idiot.” Aaron, who had started as a broker in 1998, relished his goofball reputation, which appealed to some traders who were more interested in having a relationship with a chatty, fun-loving guy than with a financially literate broker. Hayes was not one of those traders. He had little time or patience for those he deemed less intelligent than himself—a cohort that encompassed most of the world’s population. Over and over, Hayes demanded that RP Martin, if it valued its relationship with RBS’s derivatives traders, find him a new broker. After burning through his third or fourth unsatisfactory RP Martin broker, Hayes told the company that he wanted someone young, someone whom he could mold. Behind closed doors, the RP Martin brokers fumed. One dubbed Hayes “the most rude person” he “had ever had the misfortune to meet.” Nobody, it was agreed, wanted to work with this guy.
Then along came Terry Farr. Farr was about eight years older than Hayes. His mother worked for the government; his father sold shrubs and plants at a local market. Farr had dropped out of school at age fifteen. He had always wanted to work with dogs; he figured maybe he could become a canine handler in the military. That turned out to be impractical, so instead he followed his sister into banking. His first job, two days after he turned sixteen, was as an entry-level clerk at Lloyds Bank. Four years later, not long after getting laid off, he had a son with his teenage crush, Clare, a short, pretty redhead; they eventually married and settled in a house on the English coast. Farr, blond and with a ruddy, boyish face, cherished the freedom of being able to race his motorcycle—he had a particular fondness for Ducati bikes—along the hilly, windy countryside roads. Once, a wasp stung him on his chin while he was on his motorcycle. His neck and chin swelled up so much that the normally pudgy Farr look like he had suddenly become morbidly obese. He was also prone to crashes.
After a long stretch of unemployment, in which he worked with his father at their market stall, Farr became a broker. He got the job through one of Clare’s ex-boyfriends, whose father was the chairman of a brokerage firm. Farr’s inability to do math beyond simple addition and subtraction didn’t prove problematic. Five years later, in 1999, Mustard personally recruited him over beers at a London pub, nearly doubling Farr’s salary to £60,000. Farr came to love Caplin and the casual culture he presided over. In the summer, Farr showed up to work wearing Bermuda shorts and flip-flops—fine by Mustard.
By the time Hayes appeared on his radar, Farr was a veteran. But he had never mastered the technical side of things. His boss regarded him as hardworking but “not the sharpest person in the box.” (More than a decade later, Farr would remain confused about the defining characteristics of the instruments, such as interest-rate swaps, that he was helping clients trade.) Farr’s expertise was as a social creature. Beer in one hand, cigarette in the other, he was a focal point in the pub, charismatic and friendly, able to make strangers feel at ease with a casual wink and a knowing smile. When Farr heard that the notoriously prickly Hayes was looking for someone malleable to be his broker, he raised his hand. Farr knew he could easily play the part of the clueless newbie. He was good at handling difficult people, and he sensed an opportunity to get in at the ground floor with a promising young trader. “I can put up with being shouted at a bit,” Farr thought to himself.
The relationship got off to a turbulent start. Hayes wasn’t interested in the broker’s excuses about not understanding basic financial concepts. He regularly screamed at Farr, who would turn the other cheek, and the abuse would gradually subside. Once, however, Farr, embarrassed that his colleagues had overheard him getting chewed out by the young trader, felt compelled to stand up for himself. To the broker’s surprise, Hayes immediately backed down and apologized. After that, he was easier to deal with.
The two men spoke daily, and before long they were on the phone a dozen or more times each day. Farr worked overtime, arriving at 5 a.m. and staying till 6 p.m., to keep Hayes happy with a steady stream of chatter about what his rival traders were up to. Gradually, to reward Farr for his patience and scraps of information, Hayes routed an increasing number of lucrative transactions through Farr.
One final broker rounded out Hayes’s squad: ICAP’s Darrell Read.
* * *
Slim and well dressed with close-cropped dark hair and dark, scowling eyebrows so pronounced that they seemed to cast shadows over his deep-set eyes, Read wasn’t like most other brokers. The son of a carpenter, he had graduated from Liverpool University in 1986 with a degree in geography and zoology—the first member of his family to earn a college diploma and an achievement uncommon among his professional peers. A passionate rugby player and fan, he once turned down a job in Zurich because of Switzerland’s lack of a rugby culture. One of his teammates on his local rugby squad was an ICAP broker, and he suggested that Read apply for a job there. Read declined. But, years later, stuck in a dead-end job as a clerk at a small bank, he ran into his rugby friend again. This time, Read took him up on the idea.
After getting the job, Read continued to tell friends that he’d like one day to become a geography teacher. But he and his wife, Joanna—the two had known each other since college and had two young sons—soon grew accustomed to his six-figure income. In an industry where creative nicknames were prized above almost all else, Read’s original moniker was “Beryl,” a nod to the British actress Beryl Reid, who had spent a career depicting eccentric characters. That proved too harmless to be much fun. Read’s long, pointy nose offered greater inspiration: Among his subsequent nicknames were “Noggin,” “Nogs,” “Nez,” and “Big Nose.”
Read liked Hayes. He could tell the guy was razor-sharp. But it was also clear that he was in way over his head. He was shy and socially maladroit—the first three months of their relationship, Hayes didn’t want to meet in person—and Read felt a bit bad for him. RBS had thrown him into a market-making job where his success would hinge in large part on his ability to come up with precise prices so that he would know at exactly what levels to buy and sell the derivatives he was trafficking in. It didn’t take the technically oriented Read long to notice that some of the prices Hayes was relying on were at best imprecise. Other brokers pounced at the chance to exploit the youngster’s errors; Read offered him some pointers instead.
Like Hayes, finance and markets intuitively made sense to Read. He had a spongelike memory, especially for numbers and data. He was the rare broker who could come up with sophisticated trading strategies rather than simply executing th
em. Hayes, therefore, respected him. Read, fifteen years Hayes’s senior, also appealed to the young trader as a father figure. He encouraged that sentiment by coaching Hayes on the markets and trying to help the emotionally volatile young man remain on something resembling an even keel.
* * *
From its roots as a four-man shop, ICAP had quickly become a powerful force. It benefited from impeccable timing, coinciding with London’s growth as a crucial trading and broking hub. Michael Spencer, as CEO, had gobbled up smaller competitors and steered the firm into new markets, although interest-rate derivatives remained one of the company’s core focal points and profit sources. He had recruited similarly ambitious brokers from other London firms, men like David Casterton, who would come to form his inner circle. Before long, ICAP had a hand in a substantial fraction of all interest-rate derivatives transactions and employed nearly three thousand people in dozens of countries.
Dressed as a City dandy in red suspenders, gold cuff links, and colorful Hermès ties, Spencer had spawned the world’s biggest interdealer brokerage. But even as his thriving company became part of the British establishment, the CEO prevailed over a retrograde culture. For years, he had refused to hire women. “It was a private club,” he would explain years later. (His paternalistic concern, apparently, was whether women would put up with all the scatological language.) Spencer had a hot, unpredictable temper, and colleagues noted how his large brown eyes sometimes would go from warm and welcoming to narrow and cold, his face twisting into a grimace, when things didn’t go his way. A framed picture of the Austin Powers villain Dr. Evil graced his office wall.
Spencer’s company was rich, and so was he. He decorated ICAP’s headquarters with pieces by his favorite modern artists, including Lucian Freud. He loved wine and big parties, and ICAP soon boasted a world-class cellar. Spencer once staggered into work with such a hangover that, after he passed out on an office sofa, his employees scrawled a message on his forehead with a felt-tip pen.
By the mid-2000s, Spencer was a billionaire. He bought a ranch in Kenya, replete with black rhinos, elephants, lions, and leopards. Secure in his station, he adopted a more casual wardrobe, eschewing neckties and leaving his designer dress shirts sufficiently unbuttoned to expose an ample portion of his chest. He waded into politics, seeking to use his money to advance a tax-cutting, deregulatory agenda. He donated millions of pounds to the opposition Conservative Party and befriended its young leader, David Cameron.
None of that changed the fact that the company Spencer had built was at the center of the wildest galaxy in an out-of-control financial universe.
* * *
At the heart of the brokerage industry were a series of simple equations. The first was that for every trade a broker arranged, his firm pocketed a commission—generally ranging from a few hundred dollars to several thousand, depending on the size of the trade. Of that, the broker personally stood to pocket up to 30 percent in the form of his quarterly bonus payment. As a result, the brokers were perfectly positioned to benefit from the banking industry’s evolution from a for-client business into a self-serving profit generator, characterized by frenzied short-term trading. The key to becoming a successful broker was cultivating cozy relationships with big traders. How did brokers manage that? By doing whatever it took—with virtually no exceptions—to please important clients.
The resulting madness was rooted in another simple equation: For every $100 that a trader generated for a broker in commissions, the broker recycled $5 or $10 of that back to the trader in the form of “entertainment.” It was meant to cement the broker’s relationship with his client and, more important, to create a direct causal connection between the amount of business a trader transacted through his broker and the amount of all-expenses-paid fun that the trader enjoyed. If that sounds like a kickback, well, that’s basically what it was. In an earlier era, this might have meant taking clients out to drinks or expensive meals. But as investment-banking businesses grew, and trading volumes soared, and competition among brokers intensified, the practices metastasized. A prolific trader could rack up $1 million a year—and sometimes two or three times that—in commissions for his favored broker. Try as the brokers might, and they would try hard, it wasn’t easy to burn $100,000 on a single trader’s steaks and cocktails.
And so practices evolved. Dinners at Michelin-starred restaurants and thousand-dollar bottles of champagne at clubs were just the tip of the iceberg. All-expenses-paid jaunts to the Mediterranean resort destinations of St. Tropez and Monaco became the norm. So were boozy ski trips to the Alps; the Alpine resort town of Chamonix became something resembling an off-site campus for ICAP and Tullett. Private jets and helicopters ferried traders to the MTV European music awards. Some brokers picked up $10,000 golf club membership fees for their favored traders. One dinner hosted by the brokerage firm BGC Partners at the trendy London NYC hotel in midtown Manhattan became celebrated among brokers for the $27,500 bill that they ran up on booze alone as they plied their clients. Legend had it that over the course of the evening, the brokers and their guests managed to exhaust the hotel’s entire supply of champagne before moving on to bottles of 1970s vintage red wine. There were wild weekend trips to Las Vegas, with all (from felt tables to G-strings) that implied. When brokers got really desperate to show their prized clients some love, they would simply pick up the traders’ hotel or restaurant tabs—even if the brokers themselves weren’t there.
But leaving your credit card number on file at a restaurant or hotel was easy. One night at a club in London, an ICAP derivatives broker asked a colleague to please shut the door to the bathroom because the trader he had brought as a guest was getting out of control as he snorted line after line of cocaine. Where did the drugs come from? The broker, of course. Another ICAP broker had a standing arrangement with a lucrative trader to hire a prostitute for him a few times a month. “The next day, there would be a line of trades for me,” that broker recounted.
Of course, the brokers officially weren’t supposed to be spending company money on go-go bars, much less prostitutes or cocaine. But the industry’s efforts to police the practices were halfhearted at best. Some brokerage firms’ compliance departments maintained “banned lists” of strip clubs and other establishments that were supposed to be off-limits. So brokers would pay cash out of their own pockets, then submit inflated expenses for car services and taxis.
If there was an award for the most over-the-top entertainment, it might have gone to the brokers at Tradition Financial Services, some of whom became regular customers of a service called Lady Marmalade Adult Parties, housed in a private four-bedroom apartment near London’s Paddington Station. When the brokers and their clients showed up, they were greeted by scantily clad women and an “erotic love swing.” It got more libidinous from there (Lady Marmalade’s website promised customers “an orgasmic time”). For really high-end clients, the Tradition brokers took things a few steps further via a luxury villa they rented in the Moroccan desert. During the day, they lounged poolside; at night, they went out to clubs in Marrakesh. The brokers and their middle-aged guests often returned to the villa with prostitutes in tow. One guest referred to the occasional Marrakesh jaunts as his “week [of] joy in the NSL zone.” That stood for “no sperm left.” Once, laughing so hard that they nearly cried, the brokers offered to pay a Moroccan prostitute the equivalent of two dollars to be defecated upon. “Yup,” one of those brokers reflected, “we are classy people.”
* * *
It was a good time to be a young trader at RBS. The bank’s CEO, Goodwin, was determined to transform RBS from a provincial Scottish bank into a global powerhouse—part of a trend at the time of once-sleepy banks chasing riches through breakneck international expansion. Between 2001 and 2008, the Edinburgh-based institution would see its assets grow to about £2.4 trillion, compared to £369 billion when Goodwin had become CEO. Much of that growth came from outbidding rival banks to buy weaker competitors; Goodwin proudly describe
d his company as a “supreme predator.” He would eventually be knighted for his services to the British banking industry.*
In the early 2000s, an essential element of Goodwin’s expansion strategy was building an army of traders and salesmen to establish RBS as a vital, everyday presence in global markets, helping hedge funds, pensions, insurance companies, and other clients buy and sell a wide variety of securities, currencies, and other assets. The plan worked. By 2003, Hayes and the rest of his team of interest-rate derivatives traders were hitting their strides. They had amassed gargantuan positions; RBS’s books that year were jammed with £5.3 trillion of interest-rate derivatives, compared to £3.7 trillion two years earlier. Worldwide, there were more than one hundred traders in the squad—in London, Tokyo, New York, Singapore, and elsewhere—and as the profits poured in, RBS’s management pulled out the stops to impress them. The company paid for weekend trips for the team to gather in sunny destinations like Rome and Barcelona. They put the traders up in five-star hotels. In Monaco, they were flown to their hotel by helicopter. Senior bank managers came along, too, lavishing the traders with praise and alcohol.
One chilly evening in December 2003, RBS rented out a portion of Finsbury Square, a large grass-and-gravel gathering place nestled among the skyscrapers of central London. A decade later, the square would be home to London’s iteration of the Occupy movement, whose camped-out protesters spent months denouncing banking’s excesses. This night, RBS was throwing a big Christmas bash for its traders. With the winter sun setting in midafternoon, dozens of traders had ducked out of work early to get a head start on the revelry. The bank erected a large, white marquee tent stocked with free food and booze. By evening, the square was overrun with hundreds of inebriated bankers and traders.