Shadow Banking

by C. M. Albright

  Artem looked at his watch and said, ‘How about we take a walk on the beach? I could do with some sun.’ It was a curious comment to make as the sun had gone behind a cloud but Hans clearly shared Artem’s eagerness to get away from Roger and said, ‘I’ll come with you.’ If their motive was to put some distance between themselves and Roger, however, it had failed because Roger decided to come too, large vodka tonic and all.

  The four of them made their way down through the gardens onto the sand dunes. The beach was deserted. The sun had reappeared from behind the clouds and shone down on the senior management team of Aden Partners as they made their way to the water’s edge. None of them spoke. Normally in a social situation like this – particularly as he was the host – Miles might have thought of some conversational opener. Today, however, he remained silent. The psychological tension that clung to them was palpable and seeing as Artem and Hans had taken it upon themselves to keep Miles in the dark about their tactics, he felt no desire to elicit a more congenial mood.

  The water felt colder than it had been earlier on when Miles had gone for a swim. He kicked through the edge of the surf, as did the others.

  ‘It’s a beautiful place you’ve got here, Miles,’ said Roger.

  ‘Thanks,’ muttered Miles, as he took a big slug from his vodka and tonic. Artem and Hans didn’t appear too eager to walk far along the beach, preferring to just stand at the water’s edge and watch the late afternoon sun as it started its descent towards the horizon. It was an idyllic scene. Not even the strained atmosphere between the four men could spoil it. In the distance, a small wooden motorboat of the sort used by local fishermen chugged its way in their direction. No one seemed to pay it much attention.

  ‘I might get a place out here myself,’ said Roger. ‘Maybe I could get that place next to yours, Miles? We could be neighbours.’

  Miles gave Roger a tense smile and glanced back to the seascape. The little boat was moving towards them, the engine was getting louder.

  ‘It’s not for sale, Roger.’

  ‘You own it too?’

  ‘Yeah, I bought it a while back. I wanted to have the cove all to myself.’

  ‘Well I’ll be. I didn’t know that. It’s a nice place. Go on then, how much do you want for it?’

  ‘Like I said, Roger, it’s not for sale.’ The words came out more sharply than he had intended but he felt no need to soften them. Roger looked at him with a quizzical expression.

  Miles glanced across at Artem and Hans, both of whom were looking across at the boat which maintained a straight line towards the cove. Usually, the fishing boats from Hvar Town were heading out to open water as they passed this point. Roger was the only one amongst them who didn’t seem to have noticed its approach.

  ‘Come on Miles, I thought we were friends.’

  Miles couldn’t help but cringe at Roger’s pathetic attempt to ingratiate. He didn’t even bother to respond. The boat was getting nearer. There was a solitary figure sitting in it holding the tiller. Clearly, whoever it was was going to come ashore on the beach. The sound of the engine was close enough now that even Roger looked up and saw the boat heading his way.

  ‘What’s this then? Decided to get us some entertainment after all did you, Miles? I must say, I think I’d have preferred the usual girls than this fella.’ Roger chuckled at his joke as the boat slid through the swell and the man who was steering it cut the outboard engine and tipped it forward as the prow ran aground on the sand. The four men watched him as he climbed out of the boat, pulled it ashore and started to wade through the surf towards them.

  This was no fisherman from Hvar Town who had somehow got lost. This was someone who Miles had seen before. It was Vadim Titov’s head of security, the tall man with the deformed ear. Miles suddenly felt sick. He glanced around again at Artem and Hans and realised that they knew he was coming. He was expected.

  Roger took another slug of his drink and turned towards the approaching figure and the supercilious smile that he had worn for the past hour froze on his face as he recognised the man too.

  ‘What the fuck is he doing here?’

  No one replied. No one said a word. As the man strode through the surf, his trajectory was unequivocal. He was heading straight for Roger, who swallowed hard as his alcohol-sodden brain tried to process this new and unexpected information. The glass of vodka and tonic dropped from his hand and its heavy base embedded itself in the wet sand as the man grabbed him, put him in a head lock and then dragged him out into deeper water. Roger gasped a couple of times and Miles had the unsettling realisation that he was staring straight at him. There was an expression of surprise and horror on his face but something else too, some strange sort of acceptance – or so it seemed to Miles. Roger opened his mouth to cry out but he didn’t manage to emit any sound before his head was thrust under the water. Roger’s hands clawed at the man’s chest. His fists beat against the long muscular arms that held him under the water but they lacked anything like the strength that was needed to prevent the inevitable.

  As the man with the deformed ear held Roger’s head under the water, he looked around, scanning the beach front, checking for prying eyes. He didn’t appear to be bothered in the slightest by the three men who were standing nearby. Artem watched Roger’s weakening attempts to save himself. Hans, however, stared out to sea as though averting his eyes from the scene playing out just a few feet away from him. Neither man moved. Miles looked back at the killer as Roger’s arms flopped back into the water and his body relaxed and became still. Only when Roger was dead did Miles realise that the thought of trying to prevent his death, of trying to save him, had never crossed his mind.

  Adrenalin coursed through Miles’s body and his heart pounded as he realised that Roger’s death and the manner of his passing confirmed everything that he had feared about Aden Partners. Roger hadn’t been paranoid after all. He had known they were out to get him. He hadn’t known quite when or where or possibly how severe his employment termination would be, just that it was coming soon enough.

  Once confident that there was no one in the cove who might have seen what had occurred, the man looked at Artem and nodded – job done. Artem nodded back, his lips pursed in regret as though accepting the news of a much loved pet that had had to be destroyed. Neither man spoke. The man with the deformed ear pulled Roger’s body through the surf towards the boat and hauled it aboard. Moving around to the stern, he pushed the boat free from the soft yellow sand and once the water was up to his waist, he climbed in and stepping over Roger’s body, took up his position by the engine, started it up and set off back the way that he had come a few minutes before.

  Miles couldn’t help but consider how he might have reacted if the man had turned around once he had put the body into the boat and made his way towards him. But his thoughts were interrupted by the sound of Hans vomiting.

  Once the boat was a couple of hundred yards from the shore there was a faint splash as Roger’s body was rolled over the side of the boat and the man continued on his way, the boat riding higher in the water now that its ballast had been discharged.

  ‘OK, let’s go back now,’ said Artem.

  ‘What shall we do about the ...’ Hans gestured at Roger’s glass sticking out of the sand on the water’s edge, the ice cubes still clinking together within the vodka and tonic despite the heat of the day.

  ‘Let’s leave it for the time being,’ said Artem. ‘Roger left it there. That’s where Roger left it.’

  Artem turned around and made his way back up the beach. Hans and Miles followed. It was a relief for Miles to be able to move and he felt no surprise that his legs were so wobbly. When they arrive back to the house, having made their way through the sand dunes in silence, Miles made straight for the drinks cabinet, fetched three glasses and filled them half full of whisky. The three of them sat on the sofas where only a few minutes before there had been four of them. They all drank deeply; Artem grimaced as the liquor bit the back of his throat th
en he fixed Miles with an unflinching stare and said, ‘We need to talk.’

  Miles didn’t say anything, just turned to look at Artem as the whisky warmed his innards. Roger’s death was every bit as much a threat and a warning to Miles as it was an expedient removal of a dangerous cancer at the heart of the organisation. Thoughts crowded his mind and he didn’t feel like articulating any of them until he had managed to process the day’s events. One thought, one question, however, kept shouting louder than the others. How had he let himself get into this situation? And one man’s shadow was cast over him. He was a man who had risen so high and then fallen so spectacularly. Not Roger Ellwood but his father. Miles’s entire life had been a reaction to his father’s failure and now, here he was, infinitely more wealthy but equally compromised – if not more so. No one had threatened, however obliquely, to kill his father – as far as he knew.

  Miles had worked long and hard to ensure that he always had the ability to remove himself from situations in which he didn’t feel entirely comfortable. Firstly, it had been his family back home in New York and his childhood in general. Then it had been anything in his professional or private life that didn’t feel right. Yet, after all that, here he was, earning extraordinary amounts of money but unable to walk away. He had been trapped by his greed and hubris.

  ‘We know that you and Roger were talking,’ said Artem.

  ‘We went for lunch yesterday if that’s what you mean by talking. If you mean that there was some sort of conspiracy between us ...’

  ‘Miles, Miles, we know there wasn’t. You’re far too clever for that.’ Artem looked across at Hans. Whatever was coming next was clearly something they had discussed at length. ‘As you know, the structured credit portfolio, managed by Roger, had five billion dollars of capital allocated to it. The understanding that this was levered 2:1. We were under the impression that he owned ten billion dollars-worth of assets ranging from some CDO equity to triple B rated tranches of US sub-prime related CDOs. We were also under the impression that he had begun to wind this down, something that we had discussed on many occasions. But it was eating away at us – at you too I’m sure – as to how he was able to produce such strong returns. None of us could figure it out, right?’ Artem looked at Miles, waiting for an affirmative. Miles nodded and Artem continued. ‘Well, the thing is, it appears that alongside these cash CDOs that he owns, he went and bought another ten billion dollars-worth of synthetic CDOs and CDO squared. As you know, Miles, it’s always been our policy here at Aden that we each have our own separate portfolios. Autonomy has always been something that I’ve wanted to encourage amongst the partners. It just looks like this time, it’s been our undoing. Roger has ended up owning twenty billion dollars worth of assets against five billion dollars of equity.’

  ‘How did you find out?’ asked Miles.

  ‘We got a margin call from Holstein. It was for risk we didn’t know we had. We got them to send the trade confirmation that had clearly been signed by Roger but there’s no record of the trade being booked anywhere. It turns out we owe Holstein 100 million dollars as a margin call against some dogshit US sub-prime first loss piece Roger had bought.’ Artem let the statement hang in the air. Miles had known that things were bad with Roger’s side of the business but quite how bad, he hadn’t realised. Artem, however, wasn’t finished.

  ‘It’s because of your abilities and track record that we want you take over Roger’s side of things. It’s what we all want, Titov included. Roger’s risk is now your risk. You’re going to need to find out what has really been going on, what we actually own, and wind it down as fast as possible.

  Hans and Artem were both staring at him. He wasn’t going to give them the satisfaction of knowing that he was scared. For the first time in a long time, he could see things clearly. Everything was going to come crashing down. It was every man for himself.

  ‘You’re going to need to make the call to the local police, Miles,’ said Artem. ‘You need to tell them that Roger is missing. He had too much to drink and went for a swim. Depending on the currents, it might take a while for them to find him. While we’re waiting for them to get here, we can get our stories straight. But you’re going to have to make contact. This is your house. It’s your responsibility.’

  29 The Hedge

  5yr Xover Credit spread: 255bps

  VIX: 162

  Gold: 665

  ‘I just need to get out of the City and do something else as soon as I can,’ said Al. ‘You two managed it, didn’t you?’

  Al sat at the kitchen table at Rob and Georgina’s house just outside Totnes in Devon. Since their move from London, Rob had been lecturing in economics at Exeter University and Georgina had started her own interior design company. Al hadn’t seen them for a couple of years and when he had told them that they both looked great when they met him at the train station earlier that day, he had meant it. They did look great and he took their lack of reciprocation to mean that he didn’t. He knew he didn’t. He was drinking more than he should; he spent very little time at home because of all the overseas travel that he found himself lumbered with and when he was at home, it was almost impossible to sleep on account of little Felix, now two and with a healthy pair of lungs that he was only too happy to exercise at three o’clock in the morning. Things were difficult with Krystina too. He had worried that she had suffered from post-natal depression but whether she had or she hadn’t, there was no avoiding the fact that she had changed. Their marriage had entered a new phase. The passion was gone. On the occasions they had made love since Felix was born, it was quick and perfunctory. Their intense sexual chemistry had ebbed. Was it because they were parents now?

  ‘It’s bloody difficult to re-acclimatise,’ said Rob. ‘I look at my pay slip from Exeter and it looks like they’ve missed off a digit. It just doesn’t look right.’ Al watched the look that Georgina and Rob exchanged as he said this. It was something that they had clearly discussed at length but a collective decision had been made. It was the right thing for both of them and it was the right thing for the twins that Georgina was carrying following a successful IVF procedure. They were a family unit. A decision had been made and Al had no doubt whatsoever that it was the right one for them. It was a decision he would dearly have loved to have made too. But Krystina didn’t share the desire he had to escape from the industry. She wanted him to get out from Hartmann Milner not because it was killing him spiritually – which he felt it was – but because she thought that he could earn more elsewhere. Al giving up working in the city and taking a massive pay cut was unthinkable. She would have found the merest suggestion of it very threatening. To Krystina, it would mean that Al no longer wanted to be with her and Felix. It would be tantamount to telling her that their marriage was at an end. What Al earned was the money on which their lives were secured. If it was taken away, there would be nothing left.

  He and Krystina had made a mistake, it was as simple as that, and Felix’s birth had served to underline it. Any hope that the little boy might have brought them closer together was dashed very quickly after his birth. It made Al lavish even more love on the child, much of it born of guilt no doubt. He was so beautiful. It made Al’s heart ache just to look at him. He wanted so much for him and what he didn’t want was a life that might in any way be blighted by bad decisions that he himself might make. He had to stay with Krystina for the time being; he had to do it for Felix. It was the right thing to do. But the longing to be free from his career and his marriage was always there and the more he tried to repress it, the harder it burned.

  Krystina was away in Italy shooting a television commercial and when Al had left Felix with his mum and dad in Poole that morning, the little boy had cried when Al said goodbye. Al had found it heart-wrenching and as he had driven away from his parents’ house, he had wept. Not just for the sight of his tearful little boy waving to him through the window but for himself and his life. If he could have rationalised his feelings by thinking he was going throu
gh some sort of mid-life crisis, it might have made him feel better, but he knew that wasn’t the case. He hated what he had become. The loathing he felt for the industry, the politicisation of the management, a supposed meritocratic environment that was, in reality, anything but, had even started to manifest itself physically. Sometimes he found himself experiencing acute nausea as he made his way into work in the morning. And it wasn’t always due to the amount that he had drunk the night before.

  ‘So how’s the interior design company going?’ Al asked Georgina.

  ‘It’s good,’ she said. ‘It’s been tough starting out but I’m getting more and more commissions now. The problem I’ve got is that I’m going to have to stop working for a while with these two’ – she stroked her rounded belly – ‘and I don’t want to lose the momentum that I’ve built up over the past couple of years.’

  ‘Can’t Imo help out for a while?’ Al’s attempt to include Imogen in the conversation was no accident.

  ‘She probably could if she wanted to,’ said George, ‘but she’s still on her voyage of self-discovery.’

  ‘How do you mean?’

  ‘She’s still talking about going to live abroad and starting her own business.’

  ‘I can relate to that,’ said Al. ‘I have this recurring daydream. It’s usually when I’m stressed out and pissed off at work. In it, I’m running a little restaurant on the beach somewhere. Some idyllic spot. There are little wooden tables and chairs dotted around, all of them with red and white checked tablecloths with candles stuck in wax-covered bottles in the middle. And that’s it. That’s my dream, just running a little restaurant on the beach.’