Sir Alec Hainsworth, CEO of the City & Colonial Banking Corporation, was summoned to the Chancellery for an urgent meeting later that morning and before Fitzwilliams could have his say the INI Banking Corporation was sacrificed on the altar of political expediency.
Fitzwilliams reran the film of the last twenty four hours over and over in his mind. The question posed by the Governor of the Bank of England as to how Fitzwilliams had allowed the bank to overextend loans to the Russian oil and gas industry, returned with unfailing regularity. INI led a series of banking pools that had provide extensive loans to Gazprom, Rosneft, and above all Yakutneft through the intermediary of Tarasov’s InterBank Corporation, which managed the loans in Moscow.
There was nothing questionable about the loans, neither in the manner in which they were structured, nor in the way they were managed, after all that was a City bank’s business, its stock in trade. But the total of the sums raised was prodigious. INI had bet big on Russia, but not only on gas and oil, the bank had also extended important loans to Russian promoters for prime residential and commercial real estate developments in Moscow and Saint Petersburg.
During the first four years the joint venture had prospered and profits soared. But the bankers had not counted on the ambitions of Vladimir Putin, whose visions of a Greater Russia belonged to another age.
Wild thoughts started to flow through Fitzwilliams’ mind. Where was Tarasov? Why he had fallen foul of the Kremlin? Had he used Kennedy’s naivety to infiltrate the bank? Was Howard, or perhaps Barton, his agent? Why had he himself been blind to their machinations?
In retrospective who could have imagined the collapse of oil? Putin’s Russia had surfed the energy boom, apart from a brief hiatus during the crisis that followed the collapse of Lehman Brothers, it seemed as though nothing could stop its progression. Putin’s Russia had been the darling of Western energy consumers and markets, supplying oil at one hundred and fifteen dollars or more a barrel.
During those breathless years Russian oligarchs had dazzled the world with their yachts and extravagant living styles, even the less rich entrepreneurs from Moscow and Saint Petersburg could be seen lavishing their dollars on high living in St Moritz, Megève and on the French Riviera. They had bolstered London’s prime property boom, invading the capital, earning it the sobriquet of Little Russia. As many as two hundred and fifty thousand Russians lived in London, though of course not all were billionaire oligarchs, but their love of luxury and high living projected an aura of wealth.
To Fitzwilliams’ mind it was the bloody events in Kiev’s Maidan Nezalezhnosti, Independence Square, that had started it all, antagonising Putin and casting a shadow on his Winter Olympic extravaganza in Sochi.
Then came the invasion and annexation of the Crimea followed by sanctions, which at first seemed like nothing more than a face saving display by Europe, but slowly they began to bite. To pile on the bad news the first signs of an oil glut appeared in August and prices began to slide, slowly at first, then as the year end neared they collapsed into a withering spiral.
A FUGITIVE
As London’s High Court of Justice considered the Russian Ministry of Finance’s demand for the arrest of Tarasov, on charges of fraud and embezzlement, his lawyers protested, informing the surprised court that Tarasov was an Irish citizen and the Russian demand had no legal bearing.
At the same time Moscow’s attempt to seize his overseas assets was met with a wall since it had no power in the offshore jurisdictions where most of the oligarchs investments were held via a cascade of screen companies, which did nothing to reduce the threat of physical harm to him or his family, part of a real and well defined pattern of retortion against businessmen decreed as enemies of the Kremlin.
*
It was during the chaotic period that followed Gorbachev’s departure Sergei Tarasov first met Putin, then a middle level functionary in post-Soviet Leningrad, yet to become St Petersburg.
Putin worked for the then mayor of the city, he held a Phd in economics and had recently returned from what was then East Germany where he had served as a KGB colonel. He was a pure product of the USSR, born in 1952, and had grown up during Khrushchev-Brezhnev period, at the height of the Cold War. Order, hierarchy and organization, combined with a sense of duty and service to Mother Russia, were the values he had been taught to respect.
Tarasov remembered a conversation with Sergei Pugachev, another oligarch who had been close to Putin in his early years, but had since fallen out of favour. Putin had confided to Pugachev he had no ambition to stay in power and that his real goal was to get rich, however, as the end of his first term in office approached he began to fear what might happen if he left the Kremlin.
At the time Tarasov had put that down to idle court chatter, speculation. But a decade later Putin was rich beyond all imagination, a popular, unquestioned, all powerful, incumbent autocrat, who possessed Russia like the czars had before him.
Only a fool would step down. Like Stalin, Brezhnev or Mao he would remain in power until he died.
The question that remained was why had he, Sergei Tarasov, fallen from grace? It seemed to him it was not only his ideas, but his banking partnership with Fitzwilliams, which had not only provoked jealousy, but had also generated a powerful conduit out of Russia: a form of independence, which set him on a collision course with Putin, who apart from expecting nothing less than complete subservience, had lost control of the oligarch.
However, Putin was not alone in the Kremlin as Kalevi Kyyrönen had once explained to John Francis, with the enigmatic words: there are many towers in the Kremlin.
Since those early days in Petersburg, the ex-KGB man had radically changed. He had surrounded himself with his own confidants, old KGB pals, men like himself, and others whose vision looked to the past rather than the future.
As an individual, Putin inherited many of the traits of his Soviet predecessors and those who fell into his bad books were stripped of their privileges, banished, imprisoned or liquidated. His rule was intolerant, unforgiving, forgetting and vengeful.
Prior to the Ukraine crisis, Putin had the choice of liberalising his country, or advancing his personal dream of a Greater Russia, a vision that consisted of bringing the former members of the USSR together in an economic union, restoring the Kremlin to its former power vis-à-vis the West and its standing in the eyes of China and the developing world.
He chose the latter.
However, an unfortunate conjuncture of events derailed his ambitious plans. A collision of circumstances, starting with the Ukrainian crisis. As China’s long predictable slowdown unfolded, commodity and oil prices fell as a consequence of falling demand and oversupply, exacerbated by the sudden explosion of US shale oil production, all of which landed the Kremlin in a situation where it oil linked revenues could no longer accommodate its leader’s ambitions.
The outcomes of listening to his hard-line cronies came at the cost setting Putin on a collision course with the West.
A situation which disappointed Tarasov, who had tried to warn his political friends in London of the dangers. But Westminster persistently misread the man in the Kremlin, mistakenly believing concessions would lead to compromise. Putin, however, saw compromises as victories.
As he put it in Sotchi: ‘All states have always had and will continue to have their own diverse interests, while the course of world history has always been accompanied by competition between nations and their alliances. In my view this is absolutely natural.’
BLEAK HOUSE
The Stena ferry, Europe, docked in Rosslare at six thirty in the evening after a crossing of four hours. The Pijselman family checked into the Talbot Hotel, in Wexford, twenty kilometres from Rosslare Harbour. It was January, damp and cold, the peak of the low season. Fortunately the hotel, not a five star palace, was modern, well appointed and well heated. After an early diner the family retired to their two bedroom suite.
The next morning after a solid Irish breakfast they s
et out for Limerick, a drive of three hours across the rolling winter landscape of Kilkenny and Tipperary. Tarasov felt a huge weight fall from his shoulders taking in the villages and farms that rolled by as Kseniya cared for their two children in the back of the spacious Land Rover.
It was one in the afternoon when they arrived in Limerick City, the sky was overcast and the streets glistened after a brief shower. Tarasov called the housekeeper announcing their arrival and asked her to prepare lunch. Then after consulting a map he took the road for Foynes and a few miles further turned onto a small country road not far from Adare. Five minutes later they entered the gated driveway of a large late Georgian period country manor, which Howard had jokingly called Bleak House.
B
leak House – Limerick – Ireland
The fully renovated historic property was situated on high ground surrounded by a country estate composed of rolling woodlands and fields overlooking the Shannon River. The two hundred acre property had few neighbours, guaranteeing its occupants privacy and tranquillity.
The fourteen room house offered the Tarasovs genteel living far from the threats and dangers of Moscow, and prying British media, which would have mercilessly hounded him, as it had with certain of his less fortunate compatriots.
From the wintry Irish countryside the banker could now consider his future, how he would reorganise his life, which far from being triste was assured by the wealth he had put beyond the reach of the sinister claws of the Kremlin’s vultures, in a diversity of offshore accounts and holdings: if there was one thing Tarasov had learnt as a banker, it was to protect his own money.
*
The only time of the year there was ever any real activity at the grand house was in the summer when he arrived with his wife and children for a quiet break, or in October when he organised a shooting party for a handful of his intimates.
Pheasant shooting and fly fishing in Ireland had become part of Tarasov’s gentlemanly life style, which he had been introduced to by Michael Fitzwilliams in happier times; assiduously emulating the aristocratic banker.
The house, which sat on a low lying hill overlooked fine lawns and the rolling landscape of County Limerick, had been restored and transformed into Tarasov’s personnel shooting and fishing estate. It lay a good distance from the main road and was separated from the surrounding countryside by tall trees and hedges in a region where the locals were noted for their discretion.
The centre-piece of the house was a large hall which in bygone days had seen many celebrations when the gentry were invited to fête birthdays, family marriages and for New Year balls. Meals were served in a traditional country home dinning room from which guests could retire to a smoking room complete with a huge period fire place.
Tarasov enjoyed the master suite whilst his staying guests were accommodated in finely appointed bedrooms complete with en-suite bathrooms.
To the back of the house, shielded from view by high hedges, were the stables and outlying houses which were accessed by a service driveway from the Limerick-Tralee road.
In normally times Tarasov had flown into Kerry Airport on his private jet, a small airport where he could discretely come and go without attracting unwanted attention. It lay approximately halfway between Bleak House and Dingle, a small and picturesque harbour town, where his yacht Cleopatra was anchored in summer for family cruises around the south coast of Ireland. Dingle was far from the haunts frequented by the jetset, a couple of hours by road, or a thirty minute helicopter hop from Bleak House.
The Cleopatra had the added advantage of being a moveable hideaway if ever things got to hot, as the life of a Russian oligarch could be fraught with dangers.
Tarasov selected his guests carefully, few were the Russians who had visited his Irish home. Apart from the summer breaks and October shoot were the Listowel Races, when Fitzwilliams’ wife Alice, a well-known racehorse owner, and friend of Kseniya and her family, came down for the event. Other than that the vast house lay empty for most of the year.
*
Unlike his compatriots he had the means to secure a safe haven far from the leaden clouds that were descending on Russia. Tens of millions of ordinary Russians who had taken out loans during the boom years, not only faced crippling debts, but also job losses, and banks, after having distributed mortgages and consumer credit with few questions asked, were facing a mountain of bad loans.
Russia recovered from the 2008 crisis when the demand for energy and raw materials rose as China pursued its phenomenal growth trajectory. Energy and commodity prices climbed at breakneck speed boosting Russia and the others Brics. However, most of what followed, in Russia’s specific case, was of the Kremlin’s own making, instead of steering the economy towards recovery Putin embarked on a series of dangerous adventures: the extravagance of the Sochi Winter Olympics; his unflinching support of the Syrian dictatorship; the annexation of the Crimea; fomenting war in the Ukraine’s frontier regions; and pouring vast sums of money into his sabre rattling military budget.
The music stopped when oil prices collapsed and Western sanctions closed the door to financial markets, forcing the Bank of Russia to spend its reserves propping up the hard hit rouble.
It was no wonder men like Tarasov were disillusioned with Putin’s regime, their hopes turned to ashes and a feeling of bitterness as his policies threw their ambitions to the wind. Ordinary Russian supported Putin’s bravura, but as the crisis started to bite their pride turned to fear as businesses slashed hours, laid off workers and cut wages. They were feeling the pain of capitalism and its hard rules, compounded by the unrealistic imaginings of a modern autocrat cut off from reality by fawning oligarchs, and woe betide those who failed to respect the unwritten laws of his realm, rich or poor, as Tarasov learned, owed their total loyalty to the Kremlin’s strongman and his selfserving clique.
*
The massacre at the offices of Charlie Hebdo diverted the attention of the entire world to Paris. All other news was relegated to the back pages, as for television all other events were eclipsed.
It was Charlie Hebdo around the clock, only the football results got a brief peek-in as the events of the day and the week were run and rerun to the point viewers were mesmerised by the horror.
Never had there been a better moment for Her Majesty's Government to brush the INI grab under the carpet as Britons were concentrated on the images of their Prime Minister elbowing his way down boulevard Beaumarchais in Paris alongside an attractive blonde ‒ who viewers soon discovered was Helle Thorning-Schmidt, the Danish Prime Minister.
Meanwhile, back in London, the Chancellor finished sewing up Michael Fitzwilliams. Faced with serious losses, INI had effectively been under capitalised with little hope of help from its owners, starting with the Fitzwilliams family.
As for Tarasov, he had gone to ground.
Moscow wasted no time and following the example of London, put INI’s Moscow unit under the direct control of the Bank of Russia, which was not about to help bailing out Fitzwilliams’ City of London bank.
The pressure on the British Chancellor was twofold. The INI Banking Corporation, was not the only UK bank to be feeling the heat from the commodities slide. Another bank, more important, was also facing serious difficulties: Standard Chartered. This in addition to the election calendar explained the government’s rush to prevent contagion. Standard Chartered was looking at four and a half billion dollars in additional provisions and the need to raise billions in fresh cash from investors. It was significantly larger than Fitzwilliams’ bank with assets of six hundred and fifty billion pounds sterling.
INI looked good on paper, but it was in fact highly fragmented. Its very recent creation had not allowed Fitzwilliams the time to consolidate its different and dispersed holdings, which were dotted across the globe: Dublin, London, Amsterdam, Moscow and Hong Kong. In addition were the Fitzwilliams family held offshore banking interests in the Caribbean.
As far as the Governor of the Bank of England was
concerned the only solution had been recapitalisation and the only suitable candidate in his view was the City & Colonial, ranked amongst the world’s top ten banks, which could absorb Fitzwilliams’ bank without indigestion. Sir Alec Hainsworth, CEO of the City & Colonial, saw his intervention as a favour to the government, a means of leverage on David Cameron, the Conservative Prime Minister, and his campaign to keep Britain in the EU.
From Hong Kong, Pat Kennedy regarded the City & Colonial and Standard Chartered banks as heavily over-engaged in Chinese and in Asian markets, and both ran the risk of serious exposure if the Chinese economy got into real difficulties as many expected it would.
Given the risk of political and economic changes in Hong Kong, the Peoples Bank of China would call the shots, and if ever the former colony’s status was modified by Beijing, for example in favour of Shanghai, the London based banks would be hurt, whereas INI Hong Kong, which was effectively a local bank, would see its status enhanced, opening up vast possibilities in Mainland China.
Western governments functioned on short term agendas, the next election always in view. They did not have the luxury of an arranged result as was the case of Moscow or Beijing. The UK parliamentary calendar meant the Prime Minister’s present considerations were short term, very short term. With a general election just four months away, the outcome of which was more than uncertain for the incumbent Tory government, risks were to be avoided at all costs.
Hainsworth, recently appointed CEO of City & Colonial, had been chosen for his strong City background, however, critics saw him more as a company man than a strategist, and lacking sufficient international experience. His nomination, was a marked change from the bank’s previous appointments: men with solid backgrounds in East Asia.
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