*
The former head of City & Colonial, Edward Browne, stepped down in 2012, to take up a key place in David Cameron’s coalition government, and at the same time he was elevated to the peerage with the title Baron of Hazlehurst and introduced to the House of Lords, a procedure that justified his place in the government. There was nothing untoward in the method, in fact it was a very venerable disposition used by all governments for the appointment of unelected government ministers.
Thus, it could not be said the City & Colonial was without friends in Her Majesty’s government. The impartiality of the career banker, with City & Colonial since 1982, cum government minister could not be taken for granted when it came to banking affairs and opportunities. How could he not lend a sympathetic ear to the wants of former colleagues at City & Colonial, which had so munificently contributed to his pension fund, especially when it came to giving a nod and a wink to the takeover of Fitzwilliams’ London bank.
As former head of one of Britain’s largest bank, Edward Browne’s influence was considerable. That, with City & Colonial’s long rapacious history, made a momentarily enfeebled INI an easy victim to the redoubtable predator.
In the sixties and seventies the City & Colonial, after swallowing a number of smaller banks in Hong Kong, pursued its policy of expansion as China opened its doors to foreign investment, first moving into neighbouring Guangzhou, then extending its activities to other important Chinese cities.
City & Colonial did not meet with the same success in Russia, where scandals and devaluations had wreaked havoc at the end of the nineties and the financial crisis of 2008, which put an end to its venture. As a late comer to Russia, there were few if any suitable partners available, since the most important had already joined forces with foreign banks. As a result of its failure to find a suitable partner City & Colonial was forced it to close its operation in Moscow.
The sudden crisis that struck INI at the beginning of 2015, was a serendipitous windfall, as the minister put it, presenting City & Colonial with an extraordinary opportunity. The link with InterBank, notwithstanding the on-going problem with Tarasov, would give them an unhoped-for foothold in the Russia market once the crisis was resolved.
ISLAMISTS
Four days later O’Connelly was still trying to figure out what the Swiss Central Bank had done. He had received an alert from his account manager at the Zuricher Bankverein following the sudden rise of the Swiss franc on Forex markets.
He was about to call the Zuricher when his phone rang. A glance at the caller’s identity told him it was Angela, his Parisian literary agent.
“Hi Angela, Happy New Year.”
It was the custom in France to offer new year wishes all through January.
“Pat, the same to you and lots of success and royalties.”
“Thanks, I’d like that.”
“What are you working on?”
“As a matter of fact I’m struggling a bit with my new book.”
“Perhaps I can help you there.”
“Oh?”
“Yes, Hertzfeld called. He was excited about the events in Paris.”
“If you mean concerned, he’s not the only one.
“Whatever,” she said brushing him remark aside, “he’d like to talk to you. You’re a Parisian and you know what’s going on.”
“And...,” replied O’Connelly suspiciously.
“Well, he thinks you could write a bestseller about home grown Islamists.”
“I see.”
“He’d like to see you in New York. Wants something quick, before everybody forgets it.”
“Five million copies like Charlie Hebdo?”
“Why not it could be a real money spinner. A blockbuster.”
O’Connelly did not feel flattered. First he felt the idea was in bad taste and secondly he did not like bring treated like some kind of a hack by his editor.
“Talk to him.”
After a moment of hesitation he thought why not.
“Okay Angela. When.”
“Tomorrow. I’ll book you on the Air France flight at midday.”
“Okay. Mail me the e-tickets. First class.”
“No problem. Thanks Pat.”
O’Connelly rung off. He looked at his watch, it was time to get going. He had a lunch date with Claire.
INTERBANK
Mosbank was founded late in the late 1980s soon after Mikhail Gorbachev authorized the formation of private banks. It was one of the many incorporated in the hope of grabbing a piece of the action when the Soviet Union sought to liberalized its debilitated economy. Unfortunately for Mosbank’s ambitious owners their lack of know-how and experience in market economy banking brought them to the brink of collapse following Gorbachev’s dissolution of USSR.
It was at that point in time Dermirshian’s organisation stepped in and acquired the bank as a front to launder the ill gotten gains of his booming criminal empire. However, his men were no better trained to run a bank than their predecessors, obliging the Mafiyosa to hire a trained professional.
To restructure the bank Dermirshian hired Sergei Tarasov, a brilliant and promising young banker, freshly arrived from the US. Tarasov, after graduating at the Moscow Institute of Economics and Finance, spent two years the Harvard Business School where he was recruited by Goldman Sachs.
After two years with the investment bank he responded to the call of home where the profound changes taking place offered extraordinary opportunities for an ambitious young banker of his background. The choice was huge as banks were being set-up on almost every street corner, most of which were doomed to failure. What attracted Tarasov to Mosbank was the promise of rapid promotion and the business plan of its new owners focused on property in the Federal administrative centres of Moscow and St Petersburg.
Initially hired as business development manager, Tarasov soon outstripped those around him, ridding the bank of bad debts - not without a little help of Dermirshian’s strong arm methods, and soon turned the bank around. As a reward he was appointed president, and went about creating a new image of the bank, renaming it InterBank, to the great satisfaction of its owners, notably Alyosha Dermirshian, who in lieu of a cash reward accorded the young banker with a sizeable block of shares.
At the time of Dermirshian’s timely demise in Monte Carlo, InterBank had become one of Russia’s largest investment banks and Tarasov its controlling shareholder. With its offshore entities InterBank offered a whole range of corporate and financial services to its Russian and foreign clients.
Unlike certain other Russian bankers of that time, Tarasov had a brilliant mind, though like many others he manifestly owed his success to the backing of powerful men in politics and industry as well as that of his shady mentor.
One of his outstanding achievements was the internationalisation of InterBank. Viewed from Moscow, the creation of the INI Banking Corporation in the City of London, in partnership with Michael Fitzwilliams, was seen as a masterstroke.
Tarasov was discrete about his family life. His wife Kseniya had warned him she had little in common with Moscow’s nouveaux-riches. Her mother, who came from a family of Kerry landowner’s and race horse breeders, had married into a family of wealthy Russia émigrés, lesser aristocrats, who had fled the Revolution of 1917 and established a small private bank in the City of London in the 1920s.
Fashion models, movie stars or tennis women were not Tarasov’s style, he had chosen a well-bred Irish girl who preferred horses to fast cars and Gaelic to Russian, although she was perfectly fluent in his language.
His own family the survivors of minor Russian nobility had lost their lands during the Revolution, but miraculously survived Stalin and his successive purges becoming loyal Party followers and members of the nomenclatura, patiently waiting for better days. They were rewarded when Mikhail Gorbachev arrived with perestroika and glasnost, which enabled them to send Sergei to Harvard to complete his education.
His return to Moscow coincided with
momentous changes and Boris Yeltsin’s election as first president of the Commonwealth of Independent States.
Sergei’s decision to enter the small troubled Mosbank was not exactly what his father had in mind for him. But in a time of chaos and opportunity, the ambitious Harvard graduate seized the chance in the knowledge Russia with it vast resources in oil and gas would be the target of Western investors in an energy hungry world. Though he saw the bank and its then owners as crude ignorant men, he knew Mosbank would be a suitable vehicle for his success in a new capitalist Russia.
After Vladimir Putin’s election, Sergei, by deft manoeuvring became the bank’s most important shareholder through a series of interposing companies. On Dermirshian’s retirement to Monaco, on the French Riviera, once described by Somerset Maugham as ‘sunny place for shady people’, Tarasov moved the aging Mafiyosa’s shares in InterBank to a holding company he himself controlled in the Principality. With Dermirshian’s death Tarasov was left in full control with no visible presence of the Bratva, enabling him to expand his already solid interests in Yakutneft, the Russian oil and gas giant, building what was effectively his own financial empire.
After the link up with INB, in which the new London holding company, INI Banking Corporation, took a twenty five percent stake of the Moscow bank, Tarasov was left with the remaining seventy five percent.
The banker was not an innocent actor in the plunder of Russia’s wealth, where the people’s oil and gas companies were sold off at giveaway prices to quasi criminal oligarchs and corrupt officials, who used their gains to buy fabulous yachts, villas and all that they desired, even football clubs. As the world watched agog, they jetted-in world class stars for their private parties, where Shakira, George Michael, Britney Spears and Christina Agilera entertained their privileged guests in return for fabulous fees, where Champagne and vodka flowed as freely as the waters of the Moskva, where caviar was dished out in ladles, and all paid for from the profits of oil and gas exports as price rose to near record levels.
Tarasov parents had taught him to turn a blind eye to the inequalities of the Soviet system, it was a Russian thing, where graft was all pervading, where the children of the nomenclatura studied at the FSB Academy and on graduation were handed the best jobs in the administration and leading businesses, and where the sons of ministers and governors were appointed as vice presidents in oil companies and banks.
His rule had always been to look the other way, to roll with the system, avoiding the dangers engendered by the jealousy and ambition of others. He had been lucky and knew that as in casinos luck did not go on forever, which went a long way to explain why he had prepared the ground for a non-Russian future.
With the first signs the network of businessmen and leaders, allied to Putin since his days as deputy mayor of Petersburg in the 1990s, was coming apart, Tarasov set his plan in motion.
By expanding into private offshore banking he built a property empire, acquiring assets in the UK, Europe, the US and the Caribbean, moving a large part of his wealth offshore, despite Vladimir Putin’s very clear message he wanted business leaders to keep their investments at home.
A number of Tarasov’s residential developments in London had been financed by a pool that included Russian investors, led by InterBank Moscow, and certain of those investors were members of Putin’s inner circle.
Moscow Bank
Why things went wrong was beyond Tarasov’s control. Moscow annexed the Crimea and in retaliation the British government imposed sanctions, including the sequester by the Bank of England of interests owned by members of Putin’s inner circle.
It perhaps explained Tarasov’s plea for a negotiated settlement of the Ukrainian crisis, a plea that provoked the wrath of the Kremlin. The banker was not the only oligarch who had spoken out in favour of ending the conflict as losses mounted, and Putin, suspicious of the oligarchs motivations, retreated into an ever tighter circle of intimates, friends that went back to his days in the FSB and the state’s military and security apparatus.
Tarasov and many other Russians saw Putin’s isolationist policies leading into a blind alley, at the cost of losing all the progress gained since he came to power. But there was little the rich could do: their assets could be seized at the stroke of a pen and as a warning to others an example had to be made. The ire of the Kremlin fell on Tarasov for having voiced his opinions publicly, he who owed his wealth to the goodwill of the Kremlin would be made to pay for his perfidious acts.
His assets, more importantly InterBank, were immediately seized by order of the Ministry of Finance and put under the supervision of the Central Bank of the Russian Federation, which appointed a temporary management team including directors of the Sberbank1 to ensure the day to day functioning of the bank, preventing the transfer of funds overseas, in particular to foreign banks or businesses controlled by Tarasov and his friends.
The decision directly hit INI London. It was Moscow’s retaliation for the sanctions that had affected banks controlled by Putin’s friends who had seen hundreds of millions dollars worth of their assets frozen. They included Bank Rossiya, the bank of senior Russian officials, and the SMP Bank owned principally by two brothers, Arkady and Boris Rotenberg, childhood friends of Putin, who had amassed fortunes from rich contracts with the state and state-owned companies.
1. The Savings Bank of Russia, the country’s largest, of which the Central Bank held 51%
DAVOS SWITZERLAND
He was drawn to Thomas Mann’s ‘Magic Mountain’ by a fascination that even he had difficulty to define, perhaps it was the mystic of Switzerland, the centre par excellence of offshore banking. Davos had become a pilgrimage that Pat Kennedy had religiously made every January for the previous six or seven years.
Davos 2015 would be different for a certain number of its devotees. More than two weeks had passed since his confrontation with the City & Colonial pinstripes in his offices in Hong Kong and Kennedy vaguely hoped he would meet Sergei Tarasov or Michael Fitzwilliams.
Fitzwilliams would probably watch from afar, though in fairness it should be said he had never set foot in Davos, never mind the world Economic Forum. Pat suspected the ex-CEO was laying low at his home in Ireland. As to Tarasov he was probably holed up at his place in Limerick, in all probability judging it was too early or too dangerous to confront his friends and associates.
In any case of Vladimir Putin would be absent, too busy handling the economic disaster Russia was facing with the collapse of oil and the rouble. The Russian delegation was represented by its Deputy PM Dmitry Kozak.
After a low profile twenty four hours Kennedy saw there was nothing to be gained in hanging around and decided to move on. He was not interested in rubbing shoulders with billionaires, politicians and bankers, whose presence often looked like an exercise in self-flattery and preening. He avoided the attention of sensation seeking media personalities and self appointed pundits, who rarely got their facts right, not to mind their feeble attempts at crystal ball forecasting.
It was time to head for London to shore up support for INI HK, and discover who his real friends were. Since City & Colonial had dethroned Fitzwilliams and taken control of London, the Hong Kong entity, after the failed grab, had been left to its own means. INI HK was strong enough to survive as an independent private bank. Nothing had changed as far as its ownership structure was concerned, its shareholders were the same, that is to say the INI Banking Corporation was still a shareholder although it was now part of City & Colonial.
The question on his mind was: would City & Colonial sell the shares in the INI Hong Kong unit? There was after all a conflict of interest, its own presence in the former colony dated back more than one hundred years, to the time when City & Colonial had been incorporated in London, serving the needs of British trading companies scattered across East Asia, from Tokyo to Shanghai and Singapore, and from Calcutta to Batavia and Manilla.
Kennedy left the world’s financial string pullers and politicos gathered
for their annual knees up behind with the head of the host country’s national bank, the SNB, triying to explain his reasons for his move to abandon the Swiss francs fix to the euro. However, the man from the SNB would not alone, there was also Mario Draggi, the head of the ECB, who was on the point of launching his belated programme of quantitative easing.
When Draggi finally announced more than one trillion euros would be pumped into the eurozone economy, the euro promptly dived., and whilst the bankers and politicians attentions were focussed on the Swiss franc and the euro, Vladimir Putin pumped up the pressure in the Donetsk region, forcing the new Ukrainian president, Petro Poroshenko, to break off meetings with his backers, the World Bank and the EU, to hurry back to Kiev.
HONG KONG
The Wu Family saw INI Hong Kong as, amongst other things, a conduit for incoming and outgoing investment capital, and, if things turned sour, a means of protecting the family’s wealth.
Wu had survived the rigours of Chinese Communism and had guided his family to prosperity. They had survived the tumultuous changes of the twentieth century: Mao’s Revolutionary government, the rigours of the Great Leap Forward and the excesses of the Great Proletarian Cultural Revolution that precipitated China into a decade of grief, shame and violence. A period glossed over by China’s present day leaders, a taboo. An estimated one to two million Chinese lost their lives when Red Guards ransacked homes, beat, tortured and killed ‘decadent, reactionary class enemies’, and famine raged across the land as fields were left untilled and uncared for.
The family nevertheless preserved its wealth thanks to their profitable textile business in Hong Kong as the Peoples Republic suffered from the throes of self imposed chaos.
With Deng Xiaoping’s reforms and overture to the West things started to look up and the Wu’s invested in Shenzhen, one of Deng’s five newly created Special Economic Zones, at first in textiles, then progressively branching out into electronics and real estate development.
After decades of prosperity, clouds were forming on the horizon. Wu was not a pessimist, but there was no denying the future would be more complicated. The last weeks were proof of the instability that stalked the unwary, first was the Umbrella Revolution and the students’ Occupy Central strike that had paralysed Hong Kong for weeks, then the British with their gunboat tactics sending their ‘pinstripes’ as Kennedy called them to seize control of INI Hong Kong. By good fortune Kennedy was there to repel them, and in no uncertain terms according to Lili’s account.
The Wu’s discretely unwound their stock markets holdings as Chinese indexes reached untenable heights, sooner or later speculators would burn their fingers as in 2008, when the market collapsed leaving his family with heavy losses, but Wu was not a strong believer in history repeating itself. It was much more complicated than that, things were never exactly the same.
He did however believe bad luck stalked the unwary and at such times a visit to the temple was in order to pay respect to the gods. There he would make offerings to the three wise men: Fu, Luk and Sau, the Chinese gods of wealth, power and good fortune, entreating them to guide his family in the decisions to be taken and bless them with continued prosperity.
Over the course of the previous five years, world markets, commodities, exchange rates and interest rates had fluctuated within a remarkably narrow range. Then suddenly, almost overnight, everything seemed to have gone crazy, crises jumped into the news on an almost daily basis, it was a connected world and the globalised economy was the new norm.
He was expecting Lili, her husband Pat Kennedy and his son Leung for a family meeting at the family’s Canton mansion. Also present would be other members their enlarged family: partners and shareholders in the family business. Since the death of Lao Wu’s brother some years earlier he was the family patriarch. Not engaged in day to day decisions, but informed daily of all important events in each of their companies and branches, principally in Guangdong Province, nearby Hong Kong and Macao, but also in Shanghai and Beijing.
Umbrella Revolution and the students Occupy Central
On the agenda was a reappraisal of their business plans in view of the recent developments. There was the question of INI Hong Kong, now an independent bank, which seemed to have escaped the City & Colonial attack unscathed. Looking forward the situation was darkening, there ominous signs of the property market weakening and the worse was yet to come.
A real estate developer, Fafu Holdings, had missed an interest payment and there was risk of a default. Fafu’s problems were near to home, in Shenzhen, where trouble started when the local government blocked approval of Fafu’s property sales and new projects following a series of high profile arrests and accusation of graft.
The notes Fafu had sold to investors had fallen to a third of their original value after its projects were halted, which did not bode well for the hundreds of millions of dollar nominated bonds issued by other construction firms in Guangdong Province where property sales were falling off.
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