Death of a Financier

by John Francis Kinsella

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  Chapter 15

  The clinic was situated in a leafy residential area of Kochi, a ten minute walk from the Santa Cruz Basilica and a short taxi ride to the city's historic centre.

  At first sight it could have seemed strange, but Ajay had never been to India, on the other hand there had never been any reason for him to visit the country.

  Though his ancestors on his father's side had been Indian they had immigrated to Mauritius from Kerala in the early nineteenth century. Ajay's father spoke English, French and Creole, a curious mixture for a dark skinned Indian, however he was Mauritian, not Indian, and a Christian to boot.

  The history of their French and Creole speaking homeland had commenced when part of a Dutch fleet, blown off course by a storm, landed on the then uninhabited island in 1598. In 1715 it was seized by the French, then in 1814 after the Napoleonic Wars it was ceded to Great Britain, finally gaining its independence in 1968.

  Indian immigration to Mauritius had commenced after the abolition of slavery in 1835. The newly arrived immigrants provided labour for the island's flourishing sugarcane plantations, which prospered when it was a port of call for ships rounding the Cape en route for Asia. With the opening of the Suez Canal, Mauritius then entered a long period of decline until the advent of mass tourism put the island back on the map.

  Ajay arrived in Kochi by a direct Emirates flight towards the end of the afternoon. His first impression of India was the sub-tropical wall of heat and humidity that hit him as he disembarked to the bus waiting to take the passengers to arrivals. After the formalities he collected his baggage and proceeded to the exit where he found a driver holding a piece of cardboard with his name written on it.

  Night was falling and the twenty five kilometre drive to the city seemed long as the car weaved its way through the dense continuous stream of heavy traffic that seemed to obey no known laws. As they approached the city centre the milling crowds overflowed onto the streets and around the vehicles as the driver tried to edge forward.

  Their destination was Fort Kochi, which was to all intents an island, separated from the larger part of the city, Ernakulam, by inland waters, and accessed by bridges and ferries. After a second bridge the traffic slackened, they were approaching Fort Kochi and were soon in a residential district, less brightly lit and with much fewer people on the streets.

  It was just after eight when they pulled up before a large house, surrounded by gardens and a high wall, on Pattalam Road, in the Fort Kochi district. There the house manager took Ajay's bags and led him to a fully airconditioned, modern, self-contained first floor apartment, showing him a fully equipped kitchen, the fridge stocked with the essentials, a bathroom, a living room with a television, and a large bedroom. Then handing Ajay the keys he took his leave, informing him that meals were available on call and that he would be contacted by the clinic the next morning. In the meantime he was free and was advised to rest and have a good night's sleep.

  It was a good thing the apartment was airconditioned as the outside temperature hung in the mid-thirties compared to the low-twenties in Dubai and just one or two degrees when he had left London.

  There had been no direct flight and he had chosen to make a two night stopover in Dubai to avoid a too strenuous journey. He then continued from Dubai to Kochi, a four hour flight during which he had managed to get a couple of hours sleep.

  Ajay, a bachelor, was travelling alone, though once his operation was scheduled his parents would join him to watch over his postoperatory care and convalescence.

  The next morning he was awoken by a phone call and informed he would be picked up at ten and driven to the clinic for his preoperatory examination by the operating surgeon. Feeling much better after his night's sleep, Ajay ordered breakfast, then showered and dressed for his appointment at the clinic.

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  Chapter 16

  Francis, as a writer, had always avoided complex technical descriptions in his works, descriptions that could have either uninterested his readers or been beyond their general understanding, as in the case of banking and finance terminology. He intended to explain how the subprime mortgage debacle had emerged when rating firms used by US banks downgraded certain debt secured instruments, which were in turn secured by millions of individual homes scattered all over the USA, each of which was in itself an asset, though illiquid.

  He described how these illiquid assets, homes, were held to all intents by anonymous individual owners, who were totally ignorant of how the mortgages on their homes had been repackaged and then sold on national and international financial markets in the form of debt instruments. The same homeowners had little or no direct responsibility towards the buyers of these debt instruments, homeowners who in any case were totally detached, in time and space, from the world's great financial centres, such as Wall Street, the City of London and Tokyo.

  Any change in the individual home owner's personal situation, whether it was loss of employment, divorce, illness or debt, was unimportant and in any case out of phase in terms of time relative to the movements of financial market or the holders of the debt instruments. However, many of the said debt instruments contained a large number of subprime mortgages and when these subprime home owners were effected as higher interest rates on their loans came into effect, there was large scale default, transforming many of the debt instruments into almost worthless paper.

  Francis was greatly amused when a Daily Telegraph correspondent asked: 'What were the protagonists smoking? It was like listening to a business plan scripted by Lewis Carroll. The big difference, of course, was that, unlike Alice, Darling has not yet found a rabbit - and was unlikely to do so.'

  When the debt instruments were revealed as being almost worthless it was a disaster for West Mercian Finance, whose investment funds held a large number of these. There was no Richard Branson waiting in the wings to save them and no full page advertisements in the national dailies. Hope of a private sector bailout was zero after the beating the banks had taken in the first days of January.

  The reality was the government could not afford a repeat of the Northern Rock crisis and hoped that after the quick demise of West Mercian things would calm down.

  There was an air of schadenfreud as the man in the street saw the masters of the universe pale and trembling in their extravagantly expensive pinstriped suits, as the banks and dealers of Mammon's City announced massive cuts in their staff as losses were announced. At the same time exclusive real estate agents struggled to talk up the market in the hope that the top decile would be unaffected by the growing crisis.

  It was 2 January when events caught West Mercian by surprise; the firms share price fell sharply as a rumour swept across the City that the mortgage bank was facing difficulties in raising funds on the markets. As the day passed questions were raised as to the quality of the US debt instruments held in its investment funds.

  To make matters worse, it was commonly known that through its aggressive selling policy over the previous two years, West Mercian held a large percentage of risky subprime quality home loans on its books.

  Who had been responsible for the leak that started the rumour mill was unclear, but top management suspected certain brokers with whom they had severed links in order to avoid accusations of reckless mortgage selling.

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  Chapter 17

  Nicole was not one to worry, she believed what she wanted to believe and nobody could convince her otherwise, especially her two grown up children.

  The last decade or so had been kind to her, she had progressively added to her investments, buying houses in the Putney area and renting them to expatriate executives, who had been quite willing to pay her almost extortionate rents during the dotcom boom.

  Then there had been a moment of doubt when the last bubble burst, but multinationals did not bail out at once. Then the US Treasury invented low interest rates, after that came 911 and Bush the son launched his invasion of Afghanis
tan shortly followed by the invasion of Iraq in search for weapons of mass destruction; it seemed to confirm the power of the USA and its economy boomed as a new age of prosperity opened built around easy credit and rising property prices.

  The value of her own large home in Epsom had grown by the day, then in early 2007, to provide for her children, she sold one of her rental properties and invested in an apartment for her daughter, Sarah, in South Kensington.

  Nicole selectively filtered the little financial and property news she saw on the TV, firmly believing those who promised a continued but perhaps slower growth in property prices. The only fly in the ointment was her 400,000 euro investment in Spain, a duplex overlooking the Guadalmina Golf and Country Club, one of ten golf courses built within a radius of five or six kilometres.

  The duplex lay on a gently hill that sloped down to the shores of the Mediterranean, ten kilometres to the south of Marbella and a five minute drive to the nearest beach. She had signed up more than two years previously when the boom was at its height, but progress on the site had been slow, contractors changed, sales agents changed and building plans were changed without notification. After flying down to Marbella four times in six months it finally seemed like things were moving, her duplex would be ready for acceptation in March.

  The truth of the matter was she was sick and tired of the whole story and sick and tired of Spain, her enthusiasm had been sapped by worry and doubt. During her last Marbella trip to furnish the duplex, the rose coloured glasses off, she had visited suppliers of stone fireplaces, plaster Venus de Milos, furniture and all the kinds of fixtures and fittings for expatriate home owners in Spain. Perhaps it had been the time of the year but there were fewer customers, the salesmen seemed unenthusiastic, the wind had gone out of their sails.

  Her finances were not extended, but she was juggling too many balls at the same time; on the positive side Ryan's Battersea Park two bedroom apartment bought three years back for ?250,000 had almost double in price, though Sarah's place in Notting Hill Gate had set her back ?350,000 - a lower ground floor one bedroom flat.

  As to her own house in Epsom, it for went more than ?1.2 million and she moved into one of her two bedroom BTLs in the town centre, where she was coming to grips with living in a flat not much bigger in size than one of the reception rooms in the house she had just sold, and on top of that with a Labrador.

  Her son Ryan, an up and coming young specialist at Saint George's Hospital, suggested a Christmas break in the Maldives, Nicole seized on the occasion and convinced her daughter Sarah, who was with the estate agent Knight Frank on Sloane Avenue where business would be slow over the holiday period, to join them.

  As they boarded their flight, El Pais, a leading Spanish daily, announced that half of Spain's real estate agencies had folded in the past year due to the slowdown in the country's once booming building sector. Of the 80,000 agents that operated at the beginning of the year, only around 40,000 had survived and an estimated 100,000 staff had lost their jobs, according to the Spanish Council of Real Estate Agents.

  At the height of the boom, real estate agents had seen buyers, such as Nicole, enticed by rock-bottom interest rates, lining up to buy homes off plan. Promoters had thrown together sales brochures as fast as they could, without even going to the trouble of building show homes or apartments, offering their potential buyers nothing more than a visit to the site and non-binding plans on the signature of the contract.

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  Chapter 18

  Mike Ryman, a recently retired engineer, had been sales manager of a small construction firm in Surbiton. Together with his wife Kate they lived in the same neighbourhood for more than twenty five years in a modest semi-detached home.

  The Rymans had never sought to be upwardly mobile, prudence had always been their mark, investing all their efforts in setting up their daughters in life, now in their thirties and married with children. The couple had never gone in for exotic holidays, home extensions, electronic gadgets and new cars.

  Mike had put his faith in the firm's pension plan; the problem was with the vagaries of engineering in the UK he had been forced to change jobs more times than he would have wished for during his career, British engineering had suffered and firms were forced out of business by foreign competition and the unwillingness of successive governments to back industry.

  Towards the latter part of his career Mike had little choice but to become a one man business, representing a handful of different equipment manufacturing firms scattered up and down the country.

  The bitter reward for his prudence was a pension plan that was not what it had been promised to be back in more prosperous days. At sixty five he had finally decided it was time to call it a day, he was tired of the continuous travelling demanded by his work, driving up and down the country, week in week out, winter and summer, as business became progressively more difficult and as better equipped foreign firms moved into the market.

  Wisely he had saved, putting money aside to cover the shortfall in his pension, in a country where it was estimated that three quarters of private sector workers would face poverty in retirement. Mike had wisely invested a good part of his hard saved money in the West Mercian Building Society property fund, where he knew it was as safe as houses and where he was sure his investment would fructify.

  Their holidays had been mostly in the UK with one or two trips to Spain and more recently the Dominican Republic. To celebrate his long awaited and well earned retirement, they decided on a holiday in India and after much thumbing through a pile of holiday brochures collected by Kate from local travel agents they booked a package holiday in Kovalam, a place they had never heard of until friends had recently shown them their holiday photos.

  It seemed a good choice, firstly the weather was good; the Internet websites they checked confirmed a daily temperature of thirty degrees, zero rainfall and guaranteed clear skies, secondly it was less expensive, thirdly English was spoken and last but not least Kate thought she was familiar with the food?at least the curries.

  It was to be the event of a lifetime booked through a reputed tour company that promised holiday makers value for their money painting a glowing picture of Kerala and Kovalam in their attractive glossy brochures.

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  Chapter 19

  For Barton it was crystal clear that the success of the British economy had not been due to investment led growth that promised long term benefits, but rather a consumption boom. The idea that ploughing ever more money into housing improved the productive capacity of the country made him smile, he knew, he had spent the previous seven years ladling out lenders money for just about everything except productive investment.

  Newspapers crowed about Britain's wealth, trillions, calculated on the supposed the value of the country's homes, a chimera if ever there was one. It was common knowledge that manufacturing capacity fell daily as British firms were relocated overseas and to just about other corner of the planet where costs were lower, regardless of the long term effect on British employment.

  What would happen when the bubble finally burst as it inevitably would? What would become of the myriads of high street estate agents, mortgage brokers, mortgage lenders, surveyors and home builders, the list was long. Barton was not a specialist in macro economy but it was patently clear that something had to give and for him it was the pound sterling.

  As a mortgage broker it was not in his interest to broadcast the truth about what was going on in the property market, as to estate agents the evidence was already there, for months he had observed those in Epping staring blankly out of their windows on Saturday mornings or even standing in their doorways, cigarette in hand, looking desperately for a punter, as the number of sales went into free fall, and worse, when a punter did show up he was a seller.

  It was not only houses that were in the doldrums, Barton knew that firms like West Mercian were also exposed to the vagaries of the commercial property market, where values had fallen twelve p
ercent over the previous six months, as millions of square feet of office space came onto a market already suffering from oversupply.

  He knew that good judgement was based on good old fashioned common sense, even if he himself sometimes forgot it, and when he had seen terraced houses selling at half a million pounds in Epping he knew something was wrong, whatever bankers, analysts, or Tony Blair and his successor told the public.

  When Barton decided to throw in the towel the Footsie had fallen to 6456 points. He knew if the downward trend continued, as he expected it would, then it had a long way to fall. He remembered that in December 1999 the Footsie had stood above 6000 points before it fell, finally settling at around 3500 in January 2003. However, the stock market was a misleading indicator, it was unconnected to house price trends. At the housing markets last low in 1995 the average home price had stood at ?70,000 and since that time it had followed an uninterrupted climb, recently passing the ?200,000 mark.

  Barton's conclusion was if stock market indexes had zigzagged up and down obeying market forces there was little to justify house prices remaining unaffected and a downward spiral was imminent.

  It had taken him a long time to come to that conclusion, he had long been in disaccord with the so called contrarians, not for unrealistic reasons, but because the trend had followed a steady upward curve over more than a decade. However, when every second person he met appeared to have become a speculator, it was a sign the boom had run its course and the law of gravity would soon exercise its force, bringing all high flyers and hopefuls back to earth with more than a bump.

  His greatest regret was he had allowed himself to be drawn into the frenzy, becoming involved with the Dublin BTLs, even worse he had got his timing wrong, misjudging the moment the price curve inversed its trajectory, its apogee passing unobserved. He put that down to the optimistic side of his inherited Irish character, and not a little to do with the selling job the Irish had done.