It had become a non-regulated mix of special vehicles, trust companies, insurance firms, leasing companies, pawnbrokers, wealthy individuals, family groups and other informal lenders associations, all looking for higher yields. The problem was what would happen if it all got out of control, which was always a possibility. Black swans had the unpleasant habit of popping up in the least expected places, especially if the yuan became an internationally traded currency.
PART THREE 2013
BASQUE COUNTRY
Why Mieugard had chosen a strange château twenty kilometres south of Biarritz for the meeting seemed a mystery to Fitzwilliams. The neo-Gothic Château d’Abbadia lay just outside of Hendaye, perched on a hill overlooking the ocean. For all that it was not sinister, though certainly eccentric; from the pages of a Conan Doyle tale.
Jean Mieugard, president of the French gas giant, Aquitania, was proud of his Basque origins, as had been the nineteenth century builder of the château who in addition had been Irish on his mother’s side. The idea of a Basque-Irish marriage had pleased him; for Kennedy the château was symbolic, an omen. The fact that Aquitania was French was irrelevant.
The château had been built by Antoine d’Abbadie, a Dublin born nineteenth century explorer and ethnologist. His father, a nobleman, had fled France to Ireland during the Revolution and there he married an Irish girl. The family had two sons and returned to France in 1818, when Antoine was eight years old.
As a young man Antoine Abbadie studied at the Sorbonne, the Muséum national d’histoire naturelle and the Collège de France, after which he participated in scientific expeditions organised by the French Academy: first to Brazil, then, with his brother, to explore Abyssinia and the Blue Nile.
He built his château in Hendaye, between 1864 and 1879, where he bought the domain overlooking the ocean, which was bequeathed to the French Academy of Sciences in 1897. It contained an observatory, a chapel and Abbadie’s library that included his maps, manuscripts, Ethiopian and Basque dictionaries, works on astronomy, coins and ancient inscriptions.
The château was a ten minute drive from Villa Leïhorra where Fitzwilliams and Kennedy had been invited to stay. A magnificent Art Déco style villa built in 1926 on a hill in Ciboure overlooking the Bay of Saint-Jean de Luz, far from Paris and the City where a meeting of bankers and oil men could not have gone unnoticed.
Their goal, an ambitious investment programme in the oil group Yakutneft in Russia’s Far East in partnership with the oligarch Sergei Tarasov.
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hâteau d’Abbadia – Hendaye
SPRING WITHERS
The Arab Spring had been an unforeseen event, a Black Swan, but the Arab Summer was even more surprising. John Francis had never imagined the Egypt’s Islamist government would be ousted barely a year after its democratic election. The media announced that Mohammed Morsi, the recently elected Egyptian president, head of the Muslim Brotherhood party, had been ‘isolated’ by the army; along with members of his government and leading figures of his ruling party. Together they were being held incommunicado.
In total, over three hundred top members of the Muslim Brotherhood had been arrested during the course of a tumultuous night in Cairo. In a dramatic televised speech, General Abdulfattah al-Sisi, head of the Egyptian armed forces, accused Morsi of rejecting calls for national dialogue.
Francis feared a civil war that would would send the price of oil rocketing and markets plunging. Earlier that week as tensions rose he had called Fitzwilliams to warn him of the dangers and discuss the possible consequences.
Whatever the fate of the Egypt’s millions, the verdict concerning Mohammed Morsi was without appeal. He had failed to understand the essential task facing leaders, wherever they were, especially in the developing world: building a viable economy, the rest came a poor second. Leaders such as Morsi had only to look at China: an outstanding example of economic reality, but things were never that simple.
All that was not just of academic interest to Tom Barton; he had followed the events assiduously. As the threat of Egyptian chaos blew hot and cold, the price of oil rose and fell, and he played the markets, netting substantial gains. As ever he followed market-changing events, not merely waiting for CNN or Al Jazeera to announce the news, but by using specialist sources, experienced observers and analysts present in countries hit by crises.
He watched old hands on China and the Arab world interpret events, scanned foreign news media and read political analysis, on a constant lookout for the first signs of impending crises and the effects they could have on oil, gold and commodities. He bought and sold not to accumulate any specific asset, but to grow his wealth: in dollars, euros, Swiss francs and pounds.
*
In the background was the continued rumblings of the crisis stricken eurozone, but the event making the news in London was far from those worries, though it was the sign of an underlying sense of insecurity.
After thirty years of political bickering and financial fiascos came the long awaited ground-breaking ceremony for the redevelopment of the Battersea Power Station. It was not just any old project: the power station was a vast incongruous monument that had dominated the London skyline for more than three quarters of a century.
As a kid Jack Reagan had watched it in awe from the Grosvenor Road embankment, a great rumbling, steam belching monster, a dark clanking hive of activity. Barges filled to the gunwales with coal docked at its quays on the River Thames, where day and night huge black cranes tirelessly unloaded their cargoes onto the waiting conveyors; simultaneously empty barges were filled with clinker.
On Sundays, on their ritual outing to the Battersea Park Festival Gardens, he with his brother looked across the turbid waters fascinated by the monster, then as they crossed Chelsea Bridge they strained for a better view, which unfortunately was forever obscured by the railway bridge that crossed the river linking Victoria Station and Clapham Junction.
During WWII the vast complex was a choice target for the Luftwaffe, though its bombers never succeeded in destroying either the power station, the bridge or the railway junction, all of which were at some past time described as being amongst the world’s largest in Jack Reagan’s encyclopedias, which boasted of Britain’s and its Empire’s achievements.
The monster, clearly visible from Westminster, marked by its omnipresent plumes of surprisingly white smoke that unfurled into London’s skies, had generated a fifth of the capital’s electricity. Construction of the power station had started in 1929 and for more than half a century it had produced electricity with British coal. When it was finally decommissioned in 1983, its ruins formed a gaping eyesore on the London’s South Bank for three decades.
The twenty first century ground breaking ceremony would have made Britain’s empire builders rub their eyes at the reversal of roles. In effect, David Cameron was present as the guest of the Malaysian consortium, owners of the site, and Prime Minister Datuk Seri Najib Razak, Prime Minister of the Federation of Malaysia.
The Malaysian leader told David Cameron: ‘We are partners in prosperity.’ It was if Britain was the giant in ruin, rescued by its former colony. An echo of the fates of Greece and Rome, John Francis mused to himself as the dignitaries applauded the prime minister. The men from INI were out in force for the occasion: Fitzwilliams, Tarasov, Kennedy, Barton, Francis as well as Angus MacPherson who had specially flown in from Hong Kong for the event.
Boris Johnson, the Mayor of London, showered praise on the efforts of all those who had contributed to the project, which promised thousands of new homes.
“For Londoners,” an amused Barton whispered to Francis.
“You’re joking,” he replied mumbling under his breath.
The ordinary Londoner would be lucky if he got one of the thousands of new jobs working in the development’s multiple leisure facilities: serving in its restaurants, making beds in its hotels, or some menial job in its sport and fitness centres. Francis wondered what Johnson meant when he spoke of aff
ordable housing with apartments selling on an adjoining development going at half a million pounds for a one room studio.
The Malaysian consortium had acquired the forty acre site at the end of a long running saga that had started in 2006, when the site, once described as a ‘poisoned chalice’, was sold to Johnny Ronan, one of Ireland’s biggest property developer at that time. The flamboyant Irish property tycoon’s project collapsed into administration at the end of 2011, victim to Ireland’s unrestrained ambitions.
LONDON
The Gould empire had expanded at an extraordinary rate under Cameron’s premiership, that did not mean however that the property magnate could have been described as a friend of Cameron. Gould was not of the same class, he had not been born into privilege, he had grown up in the old East End of London, long before it was taken over by Bangladeshis and others immigrants from the Subcontinent and elsewhere.
Gould was what the certain establishment members would have begrudgingly described as a self-made man, a rough diamond, the son of a Jewish family. He had first come to the attention of the City after liquidating a large part of his very diverse property portfolio during the millennium euphoria, using his cash to break into the mainstream commercial property market. Then in 2005 he put his up portfolio as guarantee for the loans needed to launch his prestigious Gould Tower project, which as it happened turned out to be a perilous venture, as soon after commercial property prices crashed.
The banking pool put together by Michael Fitzwilliams to finance Gould’s project miraculously survived the Lehman Brothers crash and the UK banking disaster, and finally in 2010 loans were approved, signalling the worst of the crisis was past. Gould had won his bet and as markets picked up and asset values rose he went from strength to strength.
Fitzwilliams had believed in Gould when the promoter had approached him with the project for his tower. It was a perfect investment opportunity for the INI’s Europa Property Fund after Gould had been turned down by the major banks, including City & Colonial, hypocritically frowning on certain of his unorthodox arrangements with Icelandic tycoons.
In effect the financing arrangements for the Gould Tower site had initially been planned through an Icelandic bank, in what had been touted as one the largest property transactions ever undertaken in the City. However, when Iceland went under, Gould turned to Fitzwilliams and a pool of investors, including offshore funds based in the Caymans controlled by Tarasov’s friends in Moscow, and according to certain rumours the Gaddafi clan.
The inauguration of the Gould Tower in the presence of the Chancellor of the Exchequer and the Lord Mayor of London had put the property magnate into another and more frequentable class, however he did not forget the snubs and remembered his friends.
Gould’s dapper bespoke suits, chummy smile and Havana cigar, belied the true force of his character. The East End had taught Ronny how to defend himself, in more ways than one. As a teenage he had boxed his way to the London final in his weight. At eighteen his pugilistic skills earned him a job as a bouncer at the Americano, a West End night club frequented by American airmen from bases in Suffolk, who to save the cost of a hotel hung-out in the all night jazz club.
Gould discovered business psychology as a bouncer and a loan collectors’ enforcer, rarely using strong arm tactics having discovering a credible threat was better than the risk of finding himself at the local police station on charges of assault.
ROOTS
Pat Kennedy was never totally at ease in London society, or to be precise English society. England after all was at the root of the Troubles, and Ireland, now a republic, suffered in many ways from what the English had left behind: the thinly disguised vestiges of a class society, where each and everyone knew his or her place, with its haves and have nots. A society that was essentially divided into under, working, middle and moneyed classes. As a republic Ireland had no royalty, or nobility, in the British sense. There was the church, at least there had been when he was a lad, where the clergy, encouraged by the gentry, had played an overwhelming role in society.
The Irish landed gentry was not an anachronism, it was a fact, his late wife Mary’s parents were the proof, and his marriage, as seen by Pat’s mother, confirmed it. All her efforts had borne their fruit: his university education, his work experience in Boston, financed by the sacrifices of his doting parents, and the accounting practice he had built up in Limerick City, which had firmly set him in the professional classes.
Pat, already wealthy before the tragic death of his wife, had inherited the rich farmland, in and around the City of Limerick, which had been bequeathed to Mary by her parents, giving him the added status of a landowning notable.
More than a decade later, as a City of London banker, he had left his modest origins far behind. At least on the surface.
The Fitzwilliams’ family, in total contrast to Kennedy’s, was a vestige of the aristocratic Anglo-Irish landed gentry, whose most well known member was the Guinness family, more recently Barons of Iveagh. The Fitzwilliams were one of the few remaining families of that ruling class, who Brendan Behan, an Irish playwright, better know to some for his drunken outbursts, defined as Protestants with a horse.
Many members of the Anglo-Irish gentry had quit Ireland during the Irish Revolution between 1910 to 1920, and the civil war that ensued from 1919 to 1923. Their grand homes, known as ‘Big Houses’, were burnt down or blown up by Irish rebels. With the seizure of land by tenant farmers during the struggle for independence, property, confiscated by the English in earlier centuries, was returned to the Irish.
Fitzwilliams had grown up in a very ‘Big House’ as Pat Kennedy chased bats with his air rifle in the ruins of such a home outside Limerick City. From two different worlds they met by chance in Boston a couple of decades earlier as they learnt the ropes of their respective profession, Fitzwilliams a banker and Kennedy a business accountant.
The middle class, in the words of Bill Clinton, were those who ‘work hard and play by the rules’. In comparative terms there were little or no manufacturing industries of consequence in the Republic of Ireland and the middle class wafer-thin when the consumer society arrived, thus the working class consisted of the have nots: poor rural workers or struggling families in the bigger cities.
With the arrival of the consumer society, tardive as it was, came the boom years with the working classes gravitating into the ranks of the middle class, generating a labour shortage and an explosion of wages. Irishmen and women discovered disposable income and quickly learnt how to spend it: household appliances, cars, foreign holidays and homes.
Ireland invested in modern light industry and attracted foreign investors, and very soon it resembled its wealthier European neighbours, even surpassing their living standards.
With its newly found wealth and membership of the European Union in 1973, Irish society threw off the shackles of its hereditary notables: the clergy, religious orders, the local gentry, landowners, solicitors, doctors, bank managers, local merchants and businessmen. Soon a new professional class sprung up, managers, engineers, designers, production and transport specialists, the list was long. As builders set about constructing better homes, banks offered attractive mortgages and estate agents sprung up everywhere.
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imerick City – Ireland
Irish society boomed and the greatest change in Ireland, in perhaps centuries, took place at decision making levels of Irish society. Those who held power, that is to say a new generation of Irish politicians, dedicated to creating wealth for their nation and its citizens, along with government officials and businessmen, controlled the distribution of wealth, and in doing so unwittingly laid the foundations for the greatest banking and financial crisis in the nation’s history.
*
One of Pat Kennedy’s most important undertakings had been to put his wealth out of reach of the tax-man … and just about everyone else. When it came to his own money his training and background in accounting made for a very careful man.
He had learnt his lesson the hard way back in 2000, and the economic crisis had served as a great reminder of how tenuous prosperity was.
Since 2008, Pat had, not without trepidation, watched Irish bankers, tycoons and even a Rock star go bust, and justly so. To their everlasting regret many of them had invested in wild property schemes and other harebrained speculative adventures.
Pat had got out of property in 2006, when the market had started seriously overheating. Two years later he quietly slipped into Westminster Cathedral, where in a silent, but earnest prayer, he thanked the Lord, the Virgin Mary and Saint Patrick, for the first time in as long as he could remember, for having blessed him with the foresight to have got out the market when he did.
As for the hapless Rock star, after filing for bankruptcy, all he was left standing with was a diamond-encrusted wedding ring, said to be worth over thirty five thousand euros. His debts amounted to twenty million euros after his company had contracted a series of large loans to build a housing estate in County Leitrim. Only half of the homes were built and they were sold below cost.
Six years after the crisis, British banks were not yet out of the woods as multiple law suits were filed against them, by US authorities amongst others, accusing them of having misrepresented the quality of the mortgages they had sold.
“It seems like Götterdämmerung has been avoided Fitz,” Kennedy announced with a self-satisfied I-told-you-so smile, as he massacred the language of Goethe.
“What!” asked Fitzwilliams puzzled by Kennedy’s mashed words.
“The Bundestag’s constitutional court has said the bailouts to Greece are legal.”
“Oh, I see. I didn’t realize you could also speak German Pat.”
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