by David Enrich
* * *
During his time at UBS, Hayes executed tens of thousands of trades—all but a few dozen of them with other banks or Wall Street firms. In his capacity as a market maker, he offered prices to prospective customers on nearly a half-million occasions. It was a calling in which he and his peers took smug self-satisfaction. Market makers viewed themselves as responsible for the proper functioning of the markets—a vital duty, albeit one that primarily benefited the banks and other specialized investors that accounted for the overwhelming majority of trading. “We are the market” was a common refrain among market makers. Hayes was exceptionally good at his market-making job. He never hesitated to say yes to a trade if he was comfortable with the price that his models spat out. “Of all the things Tom was, he was a force of nature in the market,” Danny Wilkinson would recall. “He was like the George Soros of the yen market.” In one bit of folklore, Hayes sometimes traded so heavily that he skewed the market in noticeable ways. For example, six-month yen Libor should always be higher than the three-month variety because it costs more—reflecting the higher risk—to borrow for longer time periods. But sometimes that relationship inverted. Brokers attributed the phenomenon to Hayes.
One spring day, a journalist got in touch, looking for expert commentary about the turbulent market. It was the first time Hayes had spoken to a reporter. Hayes proudly shared the resulting e-mail exchange with Read. “I like it, mate,” Read said. “Your name in print.”
No, Hayes clarified, his comments would be attributed to an anonymous trader. “I don’t want my name in print,” he said. “Fame has no appeal for me. Nor infamy.”
Chapter 8
A Yacht in Monaco
Once again, rivals were taking notice of Tom Hayes. One of them was Goldman Sachs, the investment bank that epitomized Wall Street success. Its roots traced back to 1869, when it was founded in a one-room office in lower Manhattan. Over the decades, the firm became the go-to for blue-chip clients and rich individuals seeking reliable, unbiased financial counsel. By the time it converted from a privately held partnership into a publicly traded company in 1999, Goldman was not just dispensing advice but also making a killing selling and trading just about any financial product under the sun. With that success came controversy. Goldman was accused of profiteering off struggling clients and even countries, of providing conflicted, self-serving advice, of distorting public markets for its own profits. “The world’s most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money,” Rolling Stone journalist Matt Taibbi would write of Goldman in 2010. The Vampire Squid moniker stuck. Still, if you were in finance, Goldman exerted a gravitational pull like few other bodies.
One day in spring 2008, Hayes got a message from an executive at Goldman: They were interested in hiring him; would he be willing to meet? Hayes felt some loyalty to UBS, which had after all brought him to Japan and put him in a position where he was enjoying professional success that a few years ago would have been unimaginable. Plus, he was grateful that UBS had stood by him when RBC leveled its accusations. But he remained irritated by his pay. That was one thing about Goldman: It had a legendary ethos for earning money not just for its clients but also for its employees. Tighe encouraged her boyfriend to take the meeting, pointing out that the firm was the pinnacle of Wall Street and also happened to be headquartered in Manhattan. Hayes had long wanted to work in New York, where the opportunities for a skilled trader seemed virtually limitless. He agreed to meet.
Goldman’s starting point was to offer a $4.5 million package, as well as a 10 percent cut of all his trading profits. Here it was, the life-changing bonanza that Hayes—along with just about every other trader on the planet—had been waiting for. But Hayes worried about how he’d fit into Goldman’s buttoned-down culture. As part of their recruitment efforts, the Goldman executives took him out to dinner at an exclusive Japanese restaurant. Hayes showed up in his usual work getup of casual trousers and one of the polo shirts he’d received as a gift from a broker. His dinner companions, a handful of Goldman bigwigs, wore tailored suits. Hayes felt out of place. A picky, parochial eater, whose adventures in ethnic cuisine basically extended as far as a kebab or curry despite having now lived in Japan for nearly two years, he couldn’t decipher the menu. He picked at the weird-looking food that arrived at the table, but he hardly ate. Uncomfortable, Hayes made an odd demand: He wanted formal assurances, ideally a provision in his employment contract, that he would be allowed to wear polo shirts to work. It was perhaps the first time in Wall Street history that a hotshot recruit had made a sartorial demand as part of a high-stakes job negotiation. The Goldman executives discussed the bizarre stipulation, then assented.
Even so, Hayes remained torn. “It’s like leaving your girlfriend. I’m really happy where I am,” Hayes told one of his Goldman suitors, an executive named Edward Eisler.
Eisler, one of Goldman’s top trading executives, didn’t hesitate. “It’s like leaving your girlfriend because you’ve met your future wife,” he replied. Hayes was impressed by the witty retort, but it didn’t help him overcome his anxiety.
Hayes told Pieri about the flirtations with Goldman. Moving to retain its young star, Pieri went directly to Tighe, arguing that Hayes was a highly valued member of the team who could look forward to untold riches in the near future if he stuck around. Sascha Prinz e-mailed the head of UBS’s investment banking division, Jerker Johansson, to enlist his support, referring to Hayes as “one of my most talented young traders” and noting that as of June he had raked in $45 million in revenue that year—matching his total for all of 2007. Prinz proposed to Johansson that UBS give Hayes a guaranteed 2008 bonus of $2.5 million. That was unorthodox, especially for a bank that was on the ropes, but Prinz reckoned it was the least they would be able to get away with paying to ensure that Hayes didn’t accept Goldman’s richer offer.
“Approved,” came Johansson’s one-word reply five minutes later.
The deal wasn’t as ironclad as it originally seemed; it hinged on UBS and Hayes achieving their expected performances. But it was good enough for Hayes. He became one of the bank’s youngest executive directors and took on a few employees. UBS started flying him around the world to meet with some of the world’s biggest hedge funds and asset managers, whom he presented with his best trading ideas.
Hayes extracted one other concession from UBS: He and Pieri wanted to be in charge of a type of interest-rate contract known as forward rate agreements, or FRAs. Those derivatives had been the subject of a turf war between Hayes and Darin. Now Hayes emerged as the undisputed victor.
But the conquest quickly proved pyrrhic. The move enraged Darin, who remained responsible for UBS’s Libor submissions, giving him considerable power over Hayes and Pieri. Until now, the daily decision about where UBS would put its Libor numbers had been the product of a collaborative process; the group would discuss who needed what and a consensus would emerge, with Darin the ultimate decision maker. Now, though, Darin would field Hayes’s request and then push UBS’s Libor submission in the opposite direction. Clients’ needs were secondary to the internal battle. The antagonism prompted Hayes to stop speaking in person to Darin, who had moved from Singapore to Tokyo; instead, he relied entirely on typing out instant messages, even though they were sitting next to each other. And so their conversations became part of the permanent written record.
* * *
That summer, Hayes and Tighe went on a five-day vacation to Bali, their first as a couple. Hayes didn’t enjoy the change in routine. Having to string together ill-fitting pieces of an inexact itinerary stressed him out. When they got off the plane in Bali and went to retrieve their luggage, Tighe’s suitcase didn’t emerge, while Hayes’s came off the baggage carousel a bit banged up. Hayes freaked out—not about his girlfriend’s missing belongings, about which he seemed uninterested, but because of the scuff marks on his luggage. Already
irritated by her misplaced bag, Tighe was further irked by her boyfriend’s reaction. When they got to the resort, the pasty-skinned Hayes promptly headed out to sunbathe, refusing to apply sunblock to avoid anything interfering with his absorption of the precious UV rays—that was how he wanted it, and no amount of warning would sway him. The predictable result was that he got severely burnt. That evening, Tighe placed damp cloths over his scarlet arms to ease the pain.
Back in Tokyo, he soon succumbed to one of his periodic bouts of homesickness. “To be honest I want to go home really badly,” he told Read. The problem was that Tighe had arrived only a few months earlier. She had landed a job as an associate at the law firm Herbert Smith Freehills and couldn’t quit so soon after being hired. Plus, she loved Tokyo. “She won’t even discuss going home,” Hayes sniffed. She had even figured out how to speak a functional amount of Japanese—a skill that had eluded Hayes during nearly two years in Tokyo, despite eighty-five hours with a Japanese tutor paid for by UBS. Hayes figured the earliest they could return to England without imperiling Tighe’s career was June 2010—nearly two years away. He asked Read how old he’d been when he had his first child. Nearly thirty-one, Read replied, and told Hayes to hang in there for a couple of years before returning to England. After all, he was doing pretty well for himself, right? How was 2008 going? Read was floored by the answer: Hayes had made $64 million for UBS so far.
Read had been doing some life planning himself. He’d only expected to work for ICAP in New Zealand for a brief spell; by now he’d been doing it more than a year and had finally had enough. Working in New Zealand, he was isolated. On the other hand, he was continuously bombarded with shouted requests from dozens of brokers in Tokyo and London, not to mention the countless less-than-relaxing hours he spent each day on the phone with Hayes. Sure, he was making good money—he was on track to pocket £254,757 (nearly $500,000) in 2008—but he was only seeing his two sons for an hour each morning. His eldest had started complaining that he was spending less time with his dad than when the family was back in England—defeating the entire purpose of the move.
In mid-July, Read flew to Tokyo. He met Tighe for the first time, at one point taking her aside and telling her to be kind to Hayes because he was fragile. Then Read broke his big news to Hayes and Pieri: He had decided to retire at the end of the year. He planned to buy a house on the beach and spend lots of time with his family. Read’s importance to Hayes was hard to overstate; in addition to his Libor help, the broker was handling about half of Hayes’s trades, not to mention providing constant emotional support. Now Hayes would have to get along without his favorite broker.
Read’s news deepened Hayes’s feeling of malaise. “I know it’s funny, but I spend so much of my time doubting myself,” he confided to Read. “I don’t enjoy myself.”
“Which is why I thought you would take the megabucks for a couple years at Goldman Sachs and then do whatever pleased you,” Read said.
“The pressure at Goldman would have been even worse,” Hayes sighed. “That’s one reason I turned it down.” The conversation meandered for a few minutes. Then Hayes continued. “To be honest, I hate having this ‘big’ reputation. Makes people really wary of dealing with me.”
“A consequence of success,” Read said. Then the two men got back to trading.
* * *
Read’s pending retirement meant that Hayes’s second preferred broker, Terry Farr, would have to pick up some slack. Farr was having a rough summer. His other main client, Merrill Lynch’s Alexis Stenfors, was bleeding money. It didn’t help that Libor—whose direction it was Stenfors’s job, as an interest-rate trader, to anticipate—was moving in utterly unpredictable ways. Merrill Lynch wasn’t among the banks that helped set Libor, so Stenfors was mystified by its movements, but he suspected that someone, or multiple people, were skewing it deliberately. In any case, Stenfors’s lousy performance was awful news for Farr. “Don’t wanna know, mate,” Farr said when Hayes started gossiping about Stenfors’s problems. “He goes, I go. That guy looks after me very well, don’t need that going pear-shaped. He pays me a fucking lot” of commissions.
“I like him,” Hayes said.
“Me too. And of course, there’s one other guy that looks after me when he can,” Farr replied with a virtual wink.
Farr was preparing to depart on a two-week vacation, hiking in England’s Lake District before heading up to Inverness in Scotland. First, though, Hayes was looking for a favor. He had already asked ICAP to get one-month yen Libor down sharply to 0.63. He needed RP Martin to hit up its bank contacts for help, too. One of the keys was persuading Dutch lender Rabobank, a former agricultural cooperative that had developed an unfortunate taste for trading exotic financial products, to lower its submission. That’s where RP Martin came in. Farr’s colleague Jim Gilmour had a good relationship with Rabobank’s Libor submitter, Paul Robson (nickname: Pooks). Farr enlisted Gilmour, who pulled it off: Pooks slashed Rabobank’s Libor submission from 0.71 to 0.63. And HSBC, where Farr and Gilmour had another contact, also moved lower after hearing from the brokers.
For Hayes and his crew, these efforts had become so routine that they hardly merited a raised eyebrow. But they were venturing further and further into the territory of unequivocally improper behavior, not only fiddling with an individual bank’s Libor data but reaching out across corporate lines to tweak a widely used benchmark for their own financial gain. It wouldn’t be hard to construe the behavior as collusive, as a conspiracy to move Libor in ways that had absolutely nothing to do with a bank’s estimated borrowing costs. The thought had certainly occurred to Hayes at times; for comfort, he told himself that Pieri knew exactly what he was doing, which surely would provide him with cover if things ever went wrong.
* * *
Two months later, Lehman Brothers went bankrupt, the giant insurer American International Group received a record-breaking government bailout, and Merrill Lynch was gobbled up by Bank of America in an emergency deal. Thousands of traders, investment bankers, and other employees—not to mention the secretaries and security guards and janitors and cafeteria workers who populated these firms in the thousands—were about to lose their jobs. And the dominoes were just starting to fall: Over the next few weeks, some of America’s biggest banks would be subsumed by stronger rivals. Giants like Citigroup, Bank of America, even the great Goldman Sachs teetered on the brink. Overseas, the carnage was similar. Hayes’s former employer the Royal Bank of Scotland needed a huge bailout from the British government. His current employer, UBS, got one courtesy of Swiss taxpayers. Policy makers in the United States and Britain fretted that the entire financial system might collapse. Some experts wondered whether companies would be able to pay their employees and whether cash machines would keep dispensing money. It looked like the onset of another Great Depression. The bill was finally coming due for decades of reckless financial expansion.
The day of Lehman’s demise was a public holiday in Japan. At 6 a.m., Pieri called Hayes at home. He broke the news to his sleepy employee: Lehman was filing for bankruptcy and Hayes needed to get to work immediately. In UBS’s mostly deserted office (Pieri himself was overseas on vacation), Hayes spent the day trying to identify every outstanding trade that his desk had with Lehman that hadn’t been routed through a central clearinghouse. A bankrupt financial institution couldn’t be counted on to follow through on its trades, so Hayes had to go through each transaction and figure out where UBS stood after negating all deals with Lehman. He was in the office until 3 a.m. working with a tech guy to complete the task.
Hayes had another challenge that day: He had invested millions of dollars in derivatives that were due to pay off soon if yen Libor inched lower, a speculative bet that banks’ overall costs to borrow money in the Japanese currency—or at least what banks reported those borrowing costs to be—would decline. The problem was that, with the world’s financial system knocked to its knees, basic supply-and-demand dynamics dictated that banks’ borro
wing costs would likely spike. That would presumably push Libor higher.
Hayes needed his brokers to do everything they could to ensure that didn’t happen. He called RP Martin looking for Farr in London. “He’s gone on a motorbike track day with a couple of people,” Gilmour grumpily explained. Hayes asked the broker to do whatever he could to push Libor down. Gilmour called Pooks and relayed the request.
Pooks wasn’t optimistic. “They might go up because the people aren’t going to lend again, are they?” he said. “Who are you going to lend to? Everyone’s going to go fucking bust.” Not to worry, though: Pooks’s colleague at Rabobank also wanted Libor lower, for the same reason that Hayes did. And so Rabobank, at the onset of a vicious crisis, submitted data that indicated its borrowing costs, at least in yen, miraculously had declined.
Before long, Hayes realized the global crisis could play to his advantage. Most market makers had simply closed up shop, preferring to sit out the stampede. He was one of the few people still open for business. This allowed him to charge huge spreads on each transaction. Everyone was looking to sell, which meant Hayes had to buy, and he did so with abandon, quickly amassing large positions. The value of his trading portfolios swung wildly—up $12 million one day, down $10 million the next. Sometimes the gyrations were hourly. But the overall trajectory was upward: A week after Lehman’s bankruptcy, Hayes was up $70 million for the year. The biggest reason is that he was snapping up assets from desperate sellers at steep discounts; even if markets declined slightly, Hayes’s positions were still worth more (at least on paper) than what he’d paid for them. Another helpful factor was that Pieri had leaned on Prinz and others at UBS to get them to cooperate with the bank’s Libor submissions. Hayes’s trades stood to gain about $4 million for each basis point that Libor fell, and Pieri happily reported to his higher-ups that “we got some concession” from the bank’s rate submitters. “We will be a little bit lower. Every bit helps.” Amid a once-in-a-century meltdown, Hayes was making bags of money.