John still looked perplexed.
‘We are talking in terms of the straw that breaks the camel’s back,’ added Rafi. ‘It’s all about market sentiment.’
John shrugged his shoulders.
‘OK, look at it this way,’ said Aidan. ‘The terrorists have set up a three pronged attack. They want to hit our economy where it hurts - by creating major energy shortages and electricity blackouts… Crashing the stock market… And forcing the Government to borrow lots more money.’
John cast a serious look at Aidan. ‘So, unless we stop them… things will go pear shaped?’
‘Yes, and once things start to go wrong for the country’s finances, things will rapidly get worse. The Government’s credit rating and investor sentiment will plummet. And in no time at all there will be many more sellers than buyers of Government debt.’
‘Could the country go bankrupt?’
‘Probably not, but if the big investors stopped funding the UK’s vast borrowing requirement, then it would get really messy…’
‘Could I interrupt?’ asked Rafi. ‘There may be a way…’
‘Pardon?’ enquired Kate quietly, as though suspecting Rafi had flipped under the strain. Her eyes still had a sparkle to them and looked at him caringly.
‘Well,’ said Rafi, ‘it’s all about finding another source of money. A few minutes ago you mentioned property - as I was thinking about Callum. He’d been visiting a specialist property investor before he was killed. So who’s the biggest owner of property and tangible assets in the UK?’
‘The Government, the public sector and its various agencies,’ replied Aidan. ‘I recall from a recent article in the financial press that they have assets worth over £500 billion.’
‘Precisely!’ said Rafi. ‘So why couldn’t the Government put together a contingency fund, such that it did not have to go to the debt markets? Instead it could package up these assets into one or more of the new real estate investment trust vehicles - rather like the Swedish Government has done. Our Government could then issue shares in these REITs to those who require payment, compensation, etc., which would be straightforward as they would be listed on the London Stock Exchange.’
‘Yes, but I thought that the commercial property market and real estate investment trusts were in the doldrums at the moment.’ Aidan paused. ‘Sorry, I don’t mean to be a wet blanket.’
Rafi looked crestfallen. He thought for a moment. ‘OK, how about pepping up the market?’
Aidan looked at Rafi; a smile slowly stretching across his tired face. ‘What do you have in mind?’
Rafi’s mind was racing. ‘You could improve the demand for the REIT shares. What if the pension industry and those retiring could use these investments as an alternative to annuities? The REITs would have better yields than Government bonds and would appeal to many pension fund trustees and those with private pensions.’
‘That’s brilliant! No, better than that, it’s the nuts!’ enthused Aidan. ‘Real estate investment trusts would take off. Your sleight of hand would easily produce £150 billion for the Government to use, at a manageable cost. And, if they raised a bit extra they could use it to buy back gilts and keep prices firm.’
Aidan paused for a moment. ‘Your suggestion would need to be packaged properly and explained to the Treasury in terms that they understood. If it went hand in hand with a small drop in long interest rates and the markets remained stable for a couple of days, then the terrorists’ derivative positions would become untenable and they’d be wiped out financially.’
‘Hold on a moment,’ interrupted John. ‘Could you explain what a REIT is please?’
‘It is just like shares. A real estate investment trust is the property investment vehicle of choice for major investors. All it does is group a number of property investments under one umbrella. Investors can buy shares via the stock market, and they receive dividends instead of rents.’
Kate looked at Aidan and asked, ‘Realistically is this a possible solution to the impending financial problems?’
‘Yes, yes it is!’
‘Excellent! Rafi and Aidan, you work on your REITs idea and matters financial, while the rest of us get back to finding the terrorists and the missile launchers,’ said Kate.
The meeting had finished. In her relief, Kate stepped over and gave Rafi a hug.
He flinched and jumped back.
‘I’ve done it again… Apologies,’ she said, looking worriedly at him. It was as if she had invaded his personal space.
Kate turned to go. Rafi reached out and touched her shoulder; she turned and their eyes met.
‘I’m sorry,’ he said. I ran out of painkillers at lunchtime… My shoulder and back are rather sensitive, not to mention my wrist.’
‘I’m glad. No, that didn’t come out right - what I meant…’
‘Don’t worry,’ Rafi cut in.
Chapter 4
Kate sat at her desk hoping beyond all hope that crucial missing pieces of the jigsaw puzzle would start falling into place. Her instincts as a detective told her that her investigation was perilously poised. Rafi and Aidan’s reading of the position could all be a horrendous miscalculation and if their scenario was wrong, she would not only look a real idiot, but…
Jeremy’s phone rang, interrupting Kate’s thoughts. John picked up the call and put it on speakerphone. It was a call from Gareth, in Iceland. ‘How’s tricks? Sorry, Jeremy’s out at the moment.’
‘It’s brass monkeys here! And there’s no daylight!’ came the reply. ‘Got a nice hotel, though I’m not certain if I go a bundle on the cod liver oil or the roast puffin. What the heck! At least the locals are hospitable. I’ve hooked up with the Víkingasveitin, their Viking Squad, who seem to be a cross between our MI5 and the SAS. We’ve been inspecting all the shipyards and boatyards around Reykjavík – said it was a health and safety check. We just hit the bullseye at the last boatyard. There was a large yellowhulled motorboat on a slipway, inside the big boat shed. Didn’t look anything like the picture I got of Flying Goddess; they have altered her superstructure and given her a new colour to go with her new name: Golden Sundancer. I spotted Talal inspecting the boat with a geezer wearing a captain’s hat. We didn’t want to tip Talal off, so I’ve backed off.’
‘Good news that you’ve found Talal,’ said John.
Kate called across, ‘Any chance you could find out exactly what work the boatyard has done to her?’
‘While Talal is in there, I can’t just walk in and chat to the boatyard manager,’ replied Gareth. ‘It would be too obvious. As we speak, I am standing outside, waiting to see when they leave, which is why I’m so frigging cold.’
‘Rather you than me! But that’s great work - do keep in touch,’ said John replacing the receiver.
‘Now we’ve found Talal and the sheikh’s yacht, what we could do with knowing is when it’s due to leave,’ said Kate.
‘I’ve an idea,’ interjected Emma. ‘If I could borrow Aidan for a few minutes and if the people at the Icelandic boatyard speak English, it might work.’
‘What do you have in mind?’ asked Kate.
‘Well… Aidan is the type of guy who could afford a boat like Golden Sundancer. If he had a contact suggesting the Reykjavík yard… And he then asks the yard manager about the cost of some work on his boat… Hopefully the manager will be interested in new business and won’t consider questions linked to his last four or five fit-outs as suspicious.’
‘Good idea,’ said Kate, before adding, ‘John, see if you can get the contact details of the yacht broker - Jeremy’s journalist friend, Pete, has been using.’
‘No problems.’
Several minutes later, after a tortuous phone call, John had the broker’s name and phone number. ‘My God, that was like drawing teeth,’ he complained. ‘Journalists are too darn protective of their sources for their own good.’
Emma took the piece of paper from Jeremy and dialled the yacht broker’s number. ‘Hello, I wonder
if you could help me. I’m the personal assistant of Aidan Gilchrist, of Maine Leadbetter, international financiers in the City of London. My boss tells me that you’re the agents to speak to concerning the purchase of a large powerboat… Good, good, thank you. Could you please give me the details of what you have on your books in the €3 million price bracket? If possible located in Scandinavia, which is where his partner is from… I should mention that he’s thinking in terms of spending a tidy sum on getting the boat refitted to her taste – lucky lady!’ Emma chuckled. ‘Yes, I can give you some contact details… My boss is a bit impatient. Could you perhaps fax me something at your earliest convenience? Within the next ten minutes would be great. Thank you.’
As good as his word, within five minutes the yacht broker had faxed through the details of three stunning motor yachts, ranging from twenty to thirty metres in length with prices between €2 million and €3.5 million.
Aidan, briefed by Emma, picked up the phone and spoke to the Reykjavík boatyard. One could see very quickly why Aidan was a top financial dealer. He oozed charm, but came quickly to the point. It didn’t take long before the boatyard manager was chatting openly and describing the boats they’d worked on.
‘So, have you refitted anything seriously fast?’ enquired Aidan.
‘Yes,’ came the reply.
‘Excellent.’ And before Aidan could ask, the shipyard manager helpfully proceeded to give a lengthy description of what they’d done to a Sunseeker Predator 75. ‘She’s had a complete refit; new colour to the hull. We installed long-range fuel tanks, upgraded the engines and the air-conditioning, done work to the bridge and superstructure to make the vessel more comfortable in inclement seas and installed a de-icing kit to help her with the local weather. Basically we’ve enabled the boat to go virtually anywhere at any time of the year,’ said the manager proudly.
‘Did you do any work to the interior?’
‘Not much needed – we did put in a couple of very large ice boxes.’
Aidan cut to the chase. ‘Thank you. My brokers and I are looking at…,’ he hesitated and picked one of the details of the boats in front of him at random, then continuing almost seamlessly, ‘A seventy-foot motor vessel, currently moored in Sweden. She’ll need her engines reconditioning and my partner doesn’t like the colours of the state room or the master bedroom. How soon could you start work on her? I’m thinking of putting in a bid this afternoon – subject to survey, of course.’
Aidan paused and listened to the shipyard manager, and then said, ‘Oh that would be excellent. You say that the works to Golden Sundancer are completed, yes? So you can start as soon as my boat can be delivered?’
Aidan drew breath. ‘My partner, Johanna, is rather particular. Would it possible for her to fly over, say, tomorrow or the next day to see the quality of your work on the Sunseeker 75?’
He paused again. ‘Oh that is a shame - she’ll be disappointed that Golden Sundancer is putting to sea later this evening. Thank you very much for your time though, you’ve been most helpful. I have your name and contact details, so I’ll ring again on Monday to discuss the refit works.’
With that Aidan gently replaced the receiver, stood up and bowed to a round of applause from Emma.
‘Good work – no – excellent work,’ said a smiling Emma. ‘I knew you could do it. So we now know that the sheikh’s boat is leaving within the next twelve hours.’
Emma did some mental arithmetic. ‘That would tie in with a possible rendezvous with the trawler from Peterhead - off the north coast of Scotland tomorrow night.’
‘Time is running out,’ said Kate. ‘We have got to find the missing locations and the people who are going to fire the missiles.’
Emma walked casually over to Aidan’s desk. ‘I didn’t realise you had a partner.’
‘Ah well, I can be rather deceptive.’
‘You can say that again,’ said Emma, looking a little crestfallen.
Aidan smiled. ‘No you have got it wrong; it is my partner that’s the deception.’
Emma brightened visibly.
‘Emma, I have a problem,’ said Aidan, changing the subject. ‘I could do with some more space. I was wondering if you could help. I’ve printed out the vast majority of the contract notes and I’m swamped with paper!’ He flashed one of his charming smiles in her direction. ‘Any bright ideas where I could go?’
Emma muttered something under her breath which Kate didn’t catch.
‘Thanks,’ said Aidan. ‘But, I need to find a large table or floor: somewhere where I can lay out all this bumph,’ he said, pointing to the piles of paper stacked on and around his desk. ‘I’m almost there, but the lack of space is slowing me down.’
Kate stood up. ‘You two follow me. Pass me some papers to carry.’ They left the room weighed down with printouts.
Kate and Emma returned a couple minutes later to collect the remaining paperwork. ‘We’ve put him in the commissioner’s conference room and asked Beverley to keep an eye on him and to top him up with coffee. The commissioner is out, so he should get some peace and quiet,’ said Kate.
Half an hour later Aidan called Emma. He sounded pleased. ‘Could you, Rafi and Kate come up to look at a few things, please?’
They walked into the commissioner’s conference room and saw it was now almost entirely covered with paper – not just the large oval table but also the chairs, which had been pushed against the
walls, and the carpet as well.
‘Thanks for coming.’ Aidan greeted them with a grin. ‘What do you think? Look at all the Post-its Beverley’s given me.’
Emma looked around the room; each pile had a Post-it.
‘Is this entire lot colour-coded?’ enquired Emma.
‘Yep. It hasn’t taken nearly as long as I thought it would. I’ve categorised the contract notes, by colour, into various different types of deal. Things are falling into place,’ he said to Emma. ‘Rafi’s hunch is right: there’s definitely something afoot. Let me summarise where I’ve got to. I’ve been focusing on the long gilt contracts. The trades, individually, are modest in size, but when put together it’s a different matter. Someone has been position building for several weeks. I started with my book at Maine Leadbetter. There are six investors writing – that is selling – put contracts. On the other side of these transactions, Prima Terra have been buying via an offshore account. I then looked at deals done by other brokers and I’ve been able to piece together a relatively complete picture. The other players buying the put positions are using intermediaries, mainly second or third division international banks.’
John stuck his head around the corner of the door. ‘I thought that you might be up to something.’
‘Come on in,’ said Aidan with a smile. ‘I’ve identified a number of investors whose exposures could lead to huge losses,’ he said, pointing to the various piles strewn over the conference room table with pink Post-its. We’ve two building societies, two insurance companies, one local authority and one metropolitan authority… All have been investing the wrong way around: they should be buyers of these put contracts, not selling them! They have increased their risk exposure exponentially. Darn strange, darn silly and darn dangerous!’
‘Their risk management systems should have picked this up, unless the contracts were booked in a hidden holding account,’ continued Aidan. ‘If they were, no one other than the dealers would be aware of the positions. The expectation would be that they would be traded on for a profit in a matter of days.’
‘I’d bet the terrorists have bought off these dealers with large bungs into overseas bank accounts. And with the scale of potential losses you have uncovered, if things go as the terrorists plan -given the delicate state of the financial sector - contagion would rapidly set in, wouldn’t it?’ asked Kate.
Aidan nodded.
‘Sorry – I’ve heard you talk about contagion before, could you possibly explain what it means?’ asked John.
‘If you get measles yo
u’re contagious, right? In the financial markets contagion sets in when the troubles of one player are transferred across to another financially healthy player, who, for their part, gets into difficulty and passes the problem on to more players. We saw it happen in the recent credit crunch when a number of banks that had been financially sound, suddenly found themselves to be short of funds. Basically it’s a matter of there being too many forced sellers and too few buyers. Prices of assets fall dramatically, which leaves the financial sector lacking capital. In our case, the terrorists have targeted six institutions. And they will very quickly become insolvent. Other banks, insurance companies and financial institutions get sucked into the downward spiral, unless the provider of liquidity of last resort, the Bank of England, steps in very quickly and provides sufficient cash to help those in trouble,’ said Aidan. ‘What makes it particularly dangerous is that the losses will initially be heaped on just six players!’
‘The Bank would have to act very quickly and decisively or the downward momentum could become unstoppable,’ added Rafi.
‘I do not think they will procrastinate, given their recent experience with the banking crisis.’ Aidan scratched his head. ‘What concerns me is that the UK Government can’t keep on borrowing vast sums of money to bail out companies in the financial markets. Very soon they will hit the buffers and find that international investors will not lend to them. Or if they do, it will be at massively increased interest rates. And then it will be crunch time.’
‘In addition there could be big costs associated with the missile attacks.’ Rafi looked thoughtful. ‘So part of our plan must be to put across to the Government the downside hazards, in such a way that they can make informed decisions quickly.’
‘Good idea,’ agreed John. ‘What scares me is that the terrorists have resources which rival those of a small to medium sized country. We should not underestimate the damage they are capable of inflicting.’
Kate’s mouth was wide open. ‘Thank you for describing the scale of the bad news. This is seriously frightening. But first things first – we have a lot of loose ends to tidy up and time is short. In order of priority, we must stop the terrorists’ attacks or at least significantly limit the damage. And then, Rafi and Aidan, we need you to come up with a solution to stop the markets going into meltdown.’
LATENT HAZARD: On the Edge Page 15
