The Billion Dollar Sure Thing

by Paul E. Erdman

“What’s the morning fixing?”

  “74.25 an ounce.”

  “How much volume this morning?”

  “Quite a bit. Somebody’s stirring things up, but we don’t know who yet.”

  “Well, we’ll have to stir it up a bit more. Kellermann just called me. He’s got a very big order for a private client—to buy $200 million in bullion.”

  “Wow. Who is it?”

  “Don’t know. A numbered account. Kellermann said he would send down the written order after lunch, but we can start now. There are no limits. Just buy at the market. But for God’s sake, be careful. We don’t want this to get around. Say, I’d like to introduce you to Mary Rogers. She’s Dr. Hofer’s niece. Maybe you could explain what this is all about.”

  Zimmerer turned to one of the other traders while the explanation was going on. As usual it started with the prices chalked on a big blackboard. They indicated the so-called morning and afternoon fixings of the gold bullion price, in London and in Zurich, during the past days and weeks. The world gold bullion price is set in a most peculiar, in fact, unique, fashion. In both financial centres, at almost exactly the same time of day—ten in the morning and three in the afternoon—the world’s chief gold dealers sit down, four in Zurich and five in London, to compare the buy and sell orders which have come in prior to the meetings. Then they “fix” a price at which all the deals are made. If there is an excess demand, they bump the price up and meet the excess from their own stocks of gold. If an oversupply of sell orders results, they mark the gold price down and replenish their own inventory. They act as the middlemen in all gold transactions. And, of course, they always rig a nice spread between what they buy at and what they sell for. Often, as a result of five minutes’ work, between ten and ten-five they will make millions of dollars in profits, by just matching large buy and sell orders and taking their slice in the middle. In London it is a clan of venerable merchant banks, who control this market. Of course, Winthrop’s was one of them, and in fact, it was said that since many years they have really controlled things in the London gold pool. In Zurich it was the General Bank of Switzerland who called the shots in the gold game, due to the fact that it was they, and especially their clients, who accounted for the largest part of the volume. Not that they ever revealed what the volume of gold trading was on any day, or even during any month or year. Among themselves, the banks in London and Zurich had decided that such knowledge would contribute nothing to orderly trading, and that the speculators of the world should be protected from any unnecessary worries which might arise from their having anything better to go on than rumour. But Mary didn’t know this.

  “How much gold do you buy and sell here each day?”

  “I’m afraid I can’t tell you. It’s one policy of this bank which is totally ironclad,” was the gold trader’s answer.

  “Can you give me a hint?”

  “Well, in recent years the amount of new gold, coming from the mines in South Africa and sometimes Russia, amounts to about 40 million ounces. At recent prices, that’s almost $3 billion a year. But then you must remember that there are about another 200 million ounces in the hands of private speculators—in Switzerland, or France, or the Near East especially—and they are constantly buying and selling. So that might give another ten billion changing hands each year. Some put it a lot higher—a whole lot.”

  “And all that business is done from this little room?” was Mary’s response.

  “No. But let’s say this: we do more than our fair share, by quite a bit. And that’s thanks to your uncle. He probably knows more about gold than anyone in the world today. He knows everybody in the business too—from South African mine operators to the big smugglers who run gold by the ton into India from Dubai on the Persian gulf. By comparison, that fellow Goldfinger in the James Bond book was nothing.”

  “I didn’t know that.”

  Zimmerer now broke in. “Please, Miss Rogers, for goodness sake don’t mention any of this to him. He doesn’t like publicity of any kind—especially where gold is concerned.”

  All of a sudden Zimmerer seemed to be in a hurry. He said a few words in Swiss German to the men at the gold-trading desk and then left with Mary. After taking the elevator up three floors they entered a quite different world. The clatter and confusion of the foreign exchange department was suddenly replaced by the complete silence of a deeply carpeted, soundproof corridor. A uniformed guard rose to greet them after they had taken just a very few steps.

  “Dr. Hofer is expecting us,” said Zimmerer. The eyebrows of the guard rose just slightly.

  “This is his niece.” They fell back to normal.

  Dr. Hofer’s office was immense and impressive: the oak panelling, the soft paintings, the huge rugs, and even the very faint scent of cigar smoke which must have represented the lingering memory of Cuba’s best. They crossed the room toward Hofer’s desk—he never greeted anyone at the door to his office but merely signaled them in by means of an electric “Please enter” signal outside his door—and were waved toward a group of chairs that was about twenty yards away, on the other side of the room. The two young people waded through the rugs and sat down. Neither dared to talk at first, but it seemed that Mary’s nature could not stand that for long.

  “You know, Mr. Zimmerer, you’re awfully young to have such a position at the bank. Are you married?”

  “No, Miss Rogers, I guess I’ve been too caught up in my work to get around to that.”

  “Oh, come on now. You can call me Mary, you know.”

  “Fine. I’m Werner.”

  “That’s a very stern name.”

  “Well, it’s rather common in Switzerland.”

  “Werner, do you know any nice place to go dancing in Zurich? You know my uncle; my aunt is no different. And Mom is hopeless. So I can hardly ask them.”

  “Sure, there are lots of places. But it depends on what you want. I mean like everywhere, I guess, you have to be a little choosey.”

  “I’ve got an idea,” said Mary. “Why don’t we two go out somewhere together this evening. Maybe a place where we can have dinner and then dance. I’ll treat. I mean, if you’re not too busy or something. After all, I do owe you something after this morning.”

  Zimmerer thought. Very nice long hair, cute little nose, and she sure looks great in that white blouse and blue skirt. Probably have to be careful though. He decided.

  “I think that’s a terrific idea, Mary. But are you sure your uncle won’t mind?”

  “Of course not. After all, I am twenty-two.”

  “Are you staying at his place?”

  “Yes, but that’s way down the lake. Can’t we meet somewhere so you don’t have to go out and back?”

  “No. That’s no trouble. What time should I pick you up?”

  “Would seven be all right?”

  “Perfect.”

  The deal was cinched. The career prospects of Herr Zimmerer had suddenly taken on a new dimension. And after a full week—no, eight days—of nothing, Mary’s rather active sex life was suddenly returning to normal. This would be her first Swiss. She had noticed that generally they were rather short, compared to American boys. But maybe that did not make any difference.

  “Well, Mary, how did it go?” asked her uncle who had suddenly joined them, interrupting their introspective silence.

  “Just fine, Uncle Walter. You were right. It is a fascinating business.”

  “Good. Your mother’s waiting downstairs. I’ll take you. Herr Zimmerer, please wait here for a few minutes, if you don’t mind.”

  Mary solemnly shook hands with Zimmerer, winked at him, and disappeared. A few minutes later Dr. Hofer returned.

  “Herr Zimmerer, I’m glad we have this chance to talk to each other in privacy. I hear that there is a bit of commotion at the foreign exchange desk this morning. What’s going on?”

  “Herr Doktor, it’s really too early to say. But there’s big volume and some downward pressure on the dollar again.”

>   “Where’s it coming from?”

  “Hard to say.”

  “Any unusually big sellers?”

  “Really only one that we’ve noticed. The fellows in Moscow. They were very big on the selling side yesterday, and they’re back at it again today.”

  “For this time of year that is peculiar. They are almost always big net buyers of dollars in late fall to pay for agricultural imports, if I recall correctly.”

  “That’s right, sir. But, of course, this selling could very well be just concentrated on us for the moment. They might just be doing a lot of trading, playing us off against Frankfurt or London, or more probably Budapest, Bucharest and Prague. All those fellows in Eastern Europe have gotten very big in the foreign exchange game during the past couple of years. Would you like me to check all this out in detail to see if something really unusual is going on?”

  “Yes. Please do, Zimmerer. But do it carefully. And do not mention any of this to your associates. Now another thing. What’s our net dollar position?”

  “I have brought the latest figures with me, sir. Right now we are slightly short, on balance. About $40 million. That’s well within the standing limits I’ve been given, sir, for the bank’s own position.”

  “Of course.” Hofer paused and then went on. “Right. Now I want you to adjust our dollar position very carefully. From short to much shorter. You have authorization to go up to two billion short—as quickly as the market will take it. Stick to short maturities—three months maximum.”

  “You mean $2 billion or Swiss francs equivalent?”

  “Dollars.”

  “You said, as quickly as the market will take it. Do you mean today?”

  “Yes.”

  “Well, there could be a problem. I just received a customer order to short exactly that amount on almost exactly the same basis—all one-month maturities if possible, but three months will be acceptable.”

  Hofer appeared startled. He asked, “Within what price range?”

  “No price limits were given. It’s an absolutely open order.”

  “Who gave you the order?”

  “Direktor Kellermann.”

  Hofer frowned. Zimmerer continued. “And there’s something else. Kellermann told me to start executing a huge buy order for gold bullion. Same customer.”

  “Who is it?”

  “I don’t know, sir. Kellermann just said it’s an important numbered account.”

  “I’ll check this out with Kellermann. In the meantime, just carry out my instructions, Zimmerer. Thank you.”

  After Zimmerer had closed the door on the way out, Hofer picked up the phone and dialed four digits.

  “Kellermann?”

  “Jawohl, Herr Doktor.”

  “Please come up to my office. Now!” He hung up.

  The moment he hung up the phone, Hofer regretted his abruptness. Kellermann had a big future with the General Bank of Switzerland. Hofer had personally handpicked him for his current position, the one which Hofer himself had filled for ten years before taking over full command of the bank. He knew that Kellermann did not have it easy.

  The big private numbered accounts—that was the bailiwick of Kellermann, as inherited from Walter Hofer. The system was simple. All transactions for such accounts were done under a number only. Even where cash withdrawals were concerned, the client—in the utter privacy of an upstairs conference room—signed for it with his number, written out of course, like “One Hundred and Thirty-five Thousand Six Hundred and Three.” That’s Swiss for John Doe. Only two men in the entire banking organization could identify the name of the account owner with the number of his account: the account executive who set up the arrangement and Kellermann who maintained the master file of these privileged clients. The papers which contained the matching names and numbers were kept in a special safe—a huge one—solely under Kellermann’s control. It was as burgler- and fireproof as modern technology would allow. But, as still a further safeguard, completely matching documents were kept in another vault, buried deep in an Alpine cavern in a small town in the Gotthardt Pass. It was literally bombproof. The key importance of the system lay in the fact that no internal spy, who, experience had taught long ago, could easily slip into a banking organization, could get at this strategic information. For strategic it was. As a group, the people behind these numbers kept assets totalling $20 billion at the General Bank of Switzerland. Brazilians, Frenchmen, Germans, Argentines, British. They were the old hands in the use of this system. But since the 1960s countless newcomers, from New York, Miami, Las Vegas, Washington, Seoul, Bangkok, Saigon, Taiwan, Hong Kong, had joined the ranks. And then there were the ex-Cubans, the ex-Algerians, ex-kings, ex-finance ministers, ex-presidents, ex-gangsters, many of doubtful nationality not to speak of residency, who regularly enjoyed the traditional hospitality of Switzerland.

  The motives of all of these people were essentially the same. They sought protection from immoral intrusions into their private affairs. What could be more private than money? Nothing, said the Swiss, absolutely nothing. And they really meant it, with evangelical fervour. Sure, perhaps some of this money which sought refuge from prying eyes was untaxed. Perhaps it had been illegally smuggled out of Latin America or Asia into Switzerland. Maybe it was stolen. This was not Switzerland’s concern. If nations insisted upon introducing unreasonably high taxes or foreign exchange controls limiting one of man’s God-given freedoms to do what he likes with the money he amasses, that was their fault. Also a crime in Chicago was not necessarily one in Zurich. History had always proved that in money matters the Swiss were right and the rest of the world had been consistently wrong. Little did the world realize the benefits it accrued from this attitude. For it was banks like the General Bank of Switzerland which took what the incurable cynics insisted upon calling “black money,” bleached it, and put it to work productively; money which otherwise would have remained hidden and idle. Thus Switzerland was able to mobilize capital, lend it to industry, and raise the living standards of the world. Its banks regularly told their clients to buy World Bank bonds for their numbered accounts, thus truly helping—in concrete terms—those underprivileged in the developing countries. It was Swiss banks who opened the way for prudent men to buy gold, as a warning to those governments who sought to undermine the currencies of the world through reckless spending programs, which only led to inflation and the indirect confiscation of the hard-earned savings of countless numbers of the aged and afflicted. It was banks like the General Bank of Switzerland which offered the facilities enabling people from all countries to buy stocks and contribute to the survival of the free world in its fight against communism. The job, though difficult, was truly rewarding.

  Due to misunderstanding, to envy, one could never be too careful, however. Even vis-à-vis one’s own employees; pathetic but true in these days of long-haired clerks and gum-chewing secretaries. Even the young officers of the bank could no longer be trusted. They were all too often the products of chaotic universities, of confused professors who did not realize that making money with money represents the very heart of the system which has finally given dignity to a good part of mankind. The numbered account system, which in Hofer’s mind represented capitalistic perfection, the ultimate response to challenge in the area of finance, was only as good as its guardians. In this regard, Kellermann was perfect. Well, almost perfect. His devotion to the Roman Catholic Church was often disturbing. He did not have to advertise it as he did. After all, the General Bank of Switzerland was a Protestant bank, like almost all of its sister institutions in Switzerland, or for that matter, also in the United States. This was so for good reasons. It was upon the Protestant ethic that all this was built. There were standards to be maintained, confidence to be preserved. To be sure, there was much to be said for ecumenical progress. As long as it did not go too far. Hofer had been one of the first financial leaders of his country to embrace the movement. But he saw himself as a pillar of moderation. More than once he had had to r
aise his voice in restraint to point out that the moral strength of Zurich stemmed from Zwingli, from Calvin, whose teachings were hardly compatible with the machinations of a Leo or a Gregory, not to speak of the hypocrisy of a Pius. To be sure, they were part of the past, but the Jesuits were obviously very much part of the present. The Swiss Constitution still banned them from the country. Correctly so. It may well be that their tactics had changed, but had their basic philosophy? The confusion of ends and means. This was not the Swiss way of approaching things, and every enlightened Catholic must also realize this. Or be convinced. One stood up for what one knew was right and, if necessary, died on the battlefield like Zwingli for one’s faith and country.

  The buzzer startled Hofer. He seldom got caught day-dreaming in this manner.

  Kellermann entered the room and approached Hofer’s desk.

  “Glad to see you back, Dr. Hofer,” he said. “I hope your trip to Johannesburg was satisfactory.”

  “It was. Please be seated. I’ve just had a brief talk with Zimmerer of the foreign exchange department. He tells me that you gave him a very large open order to buy gold bullion and sell the dollar short. For a numbered account. What’s the story on that?”

  “The client is an American. A certain Mr. Stanley Rosen from New York. We know him well. That is, our branch in Basel knows him. He’s been a major depositor there and has done a lot of securities business with them over the years. In fact, he’s high volume all around. Rosen was one of our first overseas clients to make major Eurocurrency placements. Our Basel people tell me that they have had as much as $200 million outstanding for his accounts at one time—all on the usual trust basis.”

  “It is hardly his money.”

  “No, sir. Our people in New York have provided us with some background information on the man. It would seem that he has rather irregular types of people for whom he manages money, if you know what I mean. But this is no concern of ours. To date he has been absolutely correct in all of his dealings with us. Very exact, but very correct. Of course he receives no correspondence from the bank. He comes over and goes through the dossiers on his accounts with Widmer over in Basel about every other month.”