‘Good.’
‘What kind of cash can you put up,’ asked Michael, in the same brash manner as the Russian.
‘Let’s say a couple of hundred million. With that we could find the rest on the market, a little leverage and we would be in a very strong position to do develop our plans, starting in London.’
Fitzwilliams looked at Kennedy who had been silent for once.
‘We can do a simulation, it wouldn’t take more than a couple of days,’ Pat suggested.
‘What about your government’s position, I mean vis-à-vis hedge funds?’
‘No problem, in any case Gordon Brown’s already in trouble trying to organize the banks he’s nationalized, like trying to herd cats.’
‘Cats?’ said Tarasov puzzled.
‘Forget it Sergei, there’ll be no problem,’ replied Pat with an amused smile.
‘Очень хороший,’ said Tarasov emptying his glass. ‘Steve, as you know is in property, we’ll draw up a list of potential acquisitions. Tom is here for the tennis,’ the oligarch said with a wink as he plastered a blini with a thick layer of caviar and refilled their glasses with vodka, ‘На здоровье! To us!’
‘Sláinte,’ echoed Kennedy and Fitzwilliams.
Tarasov had reason to be pleased with himself, business was beginning to look up. The same could not be said for Russia. Its economy was directly linked to the price of oil and metals, which represented eighty percent of its exports. Oil was in the doldrums at around forty dollars a barrel, coupled with a relatively high cost of extraction, far from its one hundred and forty dollar peak a year earlier.
The Moscow stock exchange had fallen twenty percent since the beginning of June, forcing Vladimir Putin to order banks to increase lending. Russia was facing the worst economic crisis since its default in 1998. It was a big come down after the invasion of Georgia, when for a moment the Kremlin imagined it was a superpower again.
‘So let’s meet in your offices, say Tuesday,’ proposed Tarasov.
‘No problem, my secretary will fix things up, at St Mary Axe.’
‘ЧTо? What?’
‘That’s the address Sergei,’ Pat explained.
‘Да, Да.’ The Russian looked at his watch. ‘Sorry I have to go, you know a presentation to the Russian players.’
Tarasov, together with his two friends, bid the bankers a cheerful goodbye and headed for exit.
‘So what do you think of that?’ Michael asked, a little taken back by the rapidity and informality to the encounter.
‘His proposal is certainly worth looking at in detail,’ I replied cautiously.
‘It might be just what we are looking for, Tarasov’s certainly got the money,’ Pat added, his voice slightly slurred and face flushed as the vodka took its effect. ‘Howard’s very smart.’
‘Could be,’ said Michael.
‘Well the timing is right, hedge funds are picking up again with more liquidity about,’ I ventured. ‘Who was the other fellow?
‘Barton, Tom Barton, good chap, met him in Dominica,’ Michael told him, ‘a consultant, knows what he’s doing.’
The meeting with Tarasov had simply confirmed Michael’s own calculations. He had lost confidence in the kind made by Greg Schwarz, mathematical models and all that linking commercial property to economic growth and equity performance. His reference point was the US, where prime commercial property auction prices had fallen by half compared to the prices paid a couple of years before, as the number of fire sales was shooting up.
Investors like Tarasov were attracted to hedge funds, in spite of the annus horribulus, as many continued to make huge profits.
‘A new property fund would be a good idea,’ Michael had mused. ‘Our own Nassau Fund is picking up, we make 1.5% managing the fund and get 15% of the profits.’
There was nothing to lose for Tarasov and other cash rich investors, especially as equity markets looked unlikely to recover quickly in the very near future.
Tarasov’s idea for a commercial property fund was exactly what the Irish Netherlands needed. It was now up to Pat to meet and convince investors. The fly in the ointment was property vacancy rates were rising and rental incomes were falling. Fitzwilliams was however convinced that government debt would inevitably lead to inflation making prime property a good hedge.
Tycoons
I must say the moment was right. Ireland’s ephemeral property empire in London was unwinding and the sell-off of its trophy assets about to start, a feast for the vultures and jackals, and Tarasov planned to be amongst the first served. The heady days of 2007 were long gone, when Irish tycoons like Brendan Allen announced spectacular property deals in the City, scooping up iconic London’s landmarks.
Besides Brendan Allen, those in trouble included Derek Quinlan. The latter an ex-tax inspector turned entrepreneur, had built an empire fuelled by cheap loans, paying top dollar, at the peak of Ireland’s foray into prime international property.
There was ten billion pounds worth of Irish owned property in London, and I’m sorry to say much of it was in trouble, with the rush to get out accelerating by the day. Included in the targets Sergei Tarasov had set his sights on were iconic hotels and landmark buildings. Amongst these were the magnificent buildings built in the thirties that dominated the north side of Grosvenor Square, which had later become the headquarters of the US Navy in Europe. In another register was a land mark that marked my youth, Battersea Power Station, which was situated on the south bank of the Thames.
Along with Tom Barton, Steve Howard entered the fray, opening discussions with China’s sovereign wealth fund, the China Investment Corporation, with a view to acquiring the Citigroup Tower and other City properties.
Unlike many of the ten thousand or so hedge funds that existed, the new commercial property fund would not need to draw the attention of investors. The vast majority of such funds managed less than one hundred million dollars, whilst the larger funds managed over two billion dollars. Institutional investors formed the largest group of investors in hedge funds and had the means to carry out the research and risk control. There were considerable profits to be made by banks and managers to handle hedge funds, charging fees of up to two percent on assets managed and twenty percent on profits.
Sergei Tarasov’s plan was to attract nouveau riches investors, not only from Russia, but more importantly from Asia. Such investors had a growing appetite for the kind of luxury hotel that catered for their privileged classes, and overseas headquarters to house the business giants that were emerging in the Middle Kingdom.
Pat Kennedy had his sights on Asian investors, who, despite the crisis, had been discreetly investing in iconic properties, one of which was the vast Mansion of Prince Roland Bonaparte, which had been restored and transformed into the luxurious five-star Shangri-La Hotel in Paris, was built in 1896, on avenue Iena, just a stone’s throw from the Trocadéro with breath-taking views of the Seine and the Eiffel Tower.
In contrast to the disaster that had hit the financial world, many hedge fund prospered and had performed much better in comparison to bonds and equities. The worst seemed over and investors were returning to the market, which was to the advantage of hedge fund managers, given their ability to adapt quickly, developing new strategies in a market where opportunities were numerous and distressed property owners were desperate.
Since the onset of the crisis, however, a good number of hedge funds had been liquidated as asset values fell and investors pulled their money out. The hardest hit were those who had been over-leveraged or funded with hot money.
A Meeting in Moscow
Pat Kennedy was in charge of piloting the merger. Together with the bank’s lawyer James Herring, his staff had prepared a thick memorandum of understanding that formed the basis of a merger agreement between the Irish Netherlands Bank and Sergei Tarasov’s InterBank Corporation.
That same afternoon he was to fly to Moscow. It would be his first visit to Moscow and Russia for that matter. The nearest he had ever been to Russia was in the late nineties when he had visited Tallinn in Estonia. At the time it had been one of his early forays into the world beyond the shores of Ireland, apart from his business trips to London and Amsterdam.
The goal of his visit to Moscow was to ensure the final preparations for the formal signature of the merger agreement by Fitzwilliams and Tarasov the following Monday.
‘Everything’s up for sale. Did you see what that ejjet said in Dublin?’ said Kennedy à propos the words of Patrick Honohan, the governor of Ireland’s Central Bank, in Dublin the previous day.
Fitzwilliams was silent, absorbed in his thoughts.
‘He said, there’s a large for sale sign above the country’s entire banking sector.’
‘Well it’s true Pat.’
‘He even said, if a somewhat reputable buyer walks in the door between now and five o’clock, I’d be encouraging people to deal with him.’
‘I hope you’re not talking about us Pat?’
‘No Fitz. But it’s been evident for some time, banks back home can’t fund themselves alone.’
‘Well, I suppose it’s best if our Irish plans are put on the back burner, you know focus on the City and Tarasov. It’s a pity, but there’s nothing we can do about it. It’s the end of a piece of banking history.’
‘Look at it like a beginning. I mean you’re still in control.’
Fitzwilliams shrugged his shoulders. His family had founded the bank and controlled it for five generations. But it was he who had transformed it, moving its centre of operations to the City of London, privileging the UK end of the bank’s business, then, with Kennedy, expanding its business into Europe through the merger with the Nederlandsche Nassau Bank. But his next move would be a game changer.
The creation of a new City based banking group, the Irish Netherlands InterBank Corporation (INI), would open the door to almost unlimited growth for Fitzwilliams’ bank, especially in the development of Russian natural resources and more in particular in the oil and gas industry, and for Tarasov, it offered a solid presence in the City of London and the means to finance his vast and rapidly expanding business empire.
Kennedy arrived at the historic Metropol Hotel, situated just a two minute walk from the Red Square, in the sleek limousine that had been waiting for him at the VIP arrivals point at Moscow’s Sheremetyevo Airport. He was accompanied by Galina Shatalova, personal assistant to Sergei Tarasov, as she described herself, a classical cold Russian beauty.
Kennedy was promptly checked-in and followed Galina, accompanied by the day manager, to the suite reserved for him.
‘Mr Tarasov will arrive from St Petersburg late this evening and he will meet you for breakfast tomorrow morning,’ announced Galina with a business like smile. ‘In the meantime I am responsible for you and have booked seats for us at the Bolshoi this evening, a performance of Giselle.’
Kennedy nodded in agreement. He was not averse to passing the evening with the Galina, even if she did look a bit frigid.
‘So Mr Kennedy, I will pick you up at eight—sharp,’ she said taking her leave.
With little else to do Kennedy checked out his new surroundings. From the window of the suite he could see the Bolshoi Theatre, and from the city map he found in the hotel information folder, he noted Red Square was just a short walk away.
When the Metropol7 had been built at the start of the 20th century, it was a symbol of Czarist Russia’s burgeoning prosperity. Muscovites were soon calling it ‘The Tower of Babel of the twentieth century’. Its Boyarski restaurant, originally the Russkaya Palata, was one of Rasputin’s favourite haunts.
When Sergei Tarasov learnt the Moscow municipal government was planning to sell the hotel as part of its privatization program, he had thought of adding it to his list of trophies. However, he was not alone, and soon turned his attentions to a new project, the construction of a vast hotel and residential complex on the banks of the Moskva River, opposite the Kremlin, which he baptised XXI, a symbol of the new Russia.
The site was an island opposite the Alexander Garden, two kilometres from the Moscow International Business Centre situated in the Presnensky District. Eighty floors were planned and the tower would include a hotel, which he boasted would outshine the Metropol in luxury and class. Given Moscow’s lack of hotels, especially those catering for the top end of the market, the kind Russians adored, Tarasov was assured of success.
His natural curiosity getting the better of him, Pat checked his watch, then calculated he had enough time to make a quick tour of the hotel and its surroundings.
After a quick visit to the vast lobby and a glance at the hotel’s restaurants he was immediately seduced by the atmosphere. The Metropol was one of Moscow’s most luxurious and certainly most iconic hotels.
Equipped with his map he left the hotel and a few minutes later was walking through the Resurrection Gate, past the tiny Kazan Cathedral and the State History Museum, to Red Square. Красная площадь, Krasnaya ploshchad, he repeated to himself, delecting the words. He was overawed by the vast panorama and the exhilaration he felt before the powerful emblem of what had been Soviet Russia. Instantly, he felt his sojourn in the mystical heathen city would be a revelation, a defining moment in his life, the beating heart of the Russia, the land he had prayed for on Sundays as a child in Limerick City cathedral.
Back in the hotel he showered and dressed for the evening at the ballet. It precisely eight when Galina arrived. She was stunning, wearing a fabulous black off-the-shoulder evening dress, a simple string of pearls, with her long blond hair adorning her shoulders. A limousine picked them up and dropped them in front of the New Bolshoi, barely two minutes from the hotel, where they were led to their box by a serious Soviet-like matron.
Kennedy was dazzled by the crowd, there were an astonishing number of beautiful and exquisitely dressed women. Apart from his recently acquired collection of modern paintings, Pat was not what could be described as a patron of the arts, at least performing arts, though on many occasions he had attended concerts and plays in London, where such outings were expected of bankers by their friends and clients. This was something different; there was an air of excitement and anticipation. There was an indefinable feeling of being present in a parallel world. It was if he had passed through the Looking Glass and was surrounded by the elite of another dimension.
The ballet was magic, even the interval, when they drank Champagne and ate tiny caviar and smoked salmon blinis. Kennedy goggled at the crowd and Galina made small talk, informing him they would return to the Metropol for a light dinner after the ballet, as he had a full programme ahead of him over the course of the following four days.
The next morning Galina was present at nine, ready to accompany Kennedy to his meeting with Tarasov at the oligarch’s home on the outskirts of Moscow. It was the rush hour and their black Mercedes GL advanced painfully through the heavy traffic. That did not indispose Kennedy who eagerly took in all that Galina pointed out to him, especially the striking, unique, monuments to Stalinian architecture, which seemed to echo a dark past.
Tarasov’s home turned out to be a fabulous mansion that lay in the exclusive Moscow suburb of Rublovka, on the western outskirts of the city, the capital’s most exclusive residential district, where many other rich Russians had built their vastly extravagant homes. The thirty acre estate was hidden behind a high wall dotted with CCTV cameras, hidden in a forest of birch and pine, just an hour from the city centre.
It was far beyond the grim dilapidated Khrushchevki prefabricated concrete suburbs, home to one and a half million Muscovite workers.
Sergei Tarasov welcomed the Irish banker with a broad and warm smile. Pat, a confident and close friend of the Russian’s future associate, would be an important man in his plans. Kennedy responded with the same enthusiasm, he was enjoying the moment, meeting his friend in a real, though perhaps exaggeratedly kitsch dacha, at the heart of the Russian’s world.
‘Pat my friend, did Galina look after you?’
‘Yesh,’ replied Kennedy not entirely sure what the Russian mean by ‘looked after’.
‘Tell me what would you like, chai or coffee?’
‘Chai i tsitrusovyye,’ Pat tried, it sounded more exotic, something he had heard in Berlin or somewhere.
‘Excellent I see you speak Russia,’ said Tarasov smiling and leading the way to a huge reception room, decorated in the kind of baroque style certain wealthy Russians seemed to appreciate, and strangely, overlooking an indoor swimming pool.
‘You like swimming Pat?’
‘Yesh, I like to swim when I’m in Biarritz.’
‘Ah Biarritz, very fashionable today for Russians, it was one of the Czar’s favourite places.’
The chai was served by a maid on a platter accompanied by a bottle of vodka and three glasses. A few moments later they were joined by an older man who resembled a fatherly Joseph Stalin.
‘Let me introduce you Pat, this is my good friend and a shareholder of InterBank, Nikolai Yakovlevich Dermirshian8.’
The last name seemed to ring a bell, the face was vaguely familiar.
‘Nikolai Yakovlevich is one of our founders and one of our most important shareholders Pat,’ said Tarasov.
At that same instant, Galina appeared, making a sign with her thumb and auricular to Tarasov, who excused himself and left the room.
‘Mr Kennedy!’ said Dermirshian with a predatory smile, ‘We seem to have met before.’
Kennedy racked his brain, a few milliseconds passed, then the penny dropped. His enthusiasm suddenly evaporated.
‘A financial transaction, if my memory serves me well,’ Dermirshian continued, his smile transforming into a diabolical grin.
Kennedy gasped.
‘Call me Kolya,’ said Stalin grasping Kennedy’s limp hand in a powerful grip and shaking it vigorously.
With the merger of the two banks, and at the helm of the Moscow end of the new entity, INI, Tarasov soon turned his attention to financing Russia’s vast oil and gas industry with the new resources he had now had at his disposal in London.
PART 5 THE TATE
Cheyne Walk
The show at the Tate opened at the end of September and I was delighted when Ekaterina called to say she was coming to London for six days. The annual Turner Prize Exhibition at the Tate Britain opened on the thirtieth, a Monday, and Ekaterina arrived on the twenty sixth, a Thursday.
It was her first real visit beyond the region of historical Russian influence. She had persuaded Valentina Golikova that her presence in London would be a good investment as she now enjoyed close links with myself, the details of which I won’t dwell on, and the INI group heads including Sergei Tarasov, Michael Fitzwilliams and Pat Kennedy, all clients of the auction house.
That Thursday morning I stood waiting anxiously at the arrivals gate at Heathrow, it seemed like an eternity, then she appeared, unmistakable, dazzling, and to my surprise she threw herself into my arms. I was literally overcome by the joy she exuded.
We drove into London to the Cromwell Road, Queens Gate and Old Church Street to Pat Kennedy’s place, a magnificent house on Cheyne Walk. The Kennedy’s lived mostly in Hong Kong and had graciously loaned me the house. Ekaterina was overwhelmed by the place, a handsome four storey red brick house, built in the latter part of the eighteenth century, overlooking the Chelsea Embankment Gardens and the Thames to the front with its own spacious gardens to the back.
Inside we were greeted by the smell of wax polish and the fresh flowers that Mrs O’Reilly had arranged in the entrance hall and living rooms.
I’d arrived in London a couple of days earlier from Dublin and settled myself in the guest suite, situated on the second floor to the front of the house, facing the Thames and Battersea Park. The house was ours with the exception of the Kennedy’s private rooms. Mrs O’Reilly, Pat’s housekeeper, reliable and as sweet as ever, had prepared a light lunch for us, salad and fruit. She had told me before I left for the airport she would be absent for the rest of the day and would return the next morning to prepare breakfast and make up our rooms.
I showed Ekaterina around and opened the windows onto the rear gardens, letting in the sound of birds and late summer insects. To the front I opened the windows onto the embankment gardens where the smells of the river wafted in with the hiss of traffic on the embankment road beyond the gardens.
Ekaterina was enchanted, everything was so different from Moscow. She explored the different rooms which were furnished in a mixture of English and Chinese styles, decorated with fine paintings and ceramics.
Once she had arranged her affairs we ate our lunch and then took a taxi to Christie’s on King Street, in the West End. There she had an informal meeting with her counterparts whilst I passed the time inspecting a preview and browsing through the catalogues for the coming sales.
Christie’s was in fact owned by a French holding company Groupe Artémis, owned by François Pinault, it was the world's oldest fine art auctioneer selling art, furniture, jewellery and wine since 1766. Sales were held in its famous Great Room on King Street and other places around the world including Moscow.
Christie’s
Russia had become an important part of Christie’s business as auction houses in Moscow and Petersburg, attracted collectors from all over the world who had invested almost two billion dollars worth of Russian art over the previous decade.
It was a vastly profitable business which had led Ekaterina to being hired by Valentina Golikova—head of Christie’s in Moscow. One of whose goals was to increase the visibility of contemporary Russian art, which was unfortunately not well known outside of Russia, due in part to during the censorship of the Soviet era. Valentina Golikova’s plan was to reverse that trend by reviving traditional patronage of the arts with exhibitions, creating art funds, opening new galleries and appealing to new foreign buyers.
Before joining Christie’s, at its headquarters on ulitsa Mokhovaya, half a kilometre from Tverskaya, opposite the Kremlin, Ekaterina, with her formal art history qualifications, had worked with well-known Russian collectors as a consultant and curator for various exhibitions.
On entering the auction house she commenced with the company’s training programme for auctioneers, where expertise went with academic training, before starting work as a consultant in the old masters department, then moving on to contemporary art as new markets opened and new artists appeared.
Business thrived and she progressed to business development director, responsible for events such as the mid-Twentieth Century Contemporary Art exhibition at the Pushkin Museum and the development of relations with state museums, private collections and art foundations across Russia and the Federation.
Annual auctions in Moscow were devoted solely to Russian Art, much of it pre-Soviet Modernism, and more recently, contemporary art. Christie’s also offered its clients many different services, including estimates and insurance valuations, as well as arranging for the shipment of consigned or purchased art works.
Ekaterina participated in the planning for biannual sales, the hosting regular exhibitions and lectures in Moscow, covering a broad range of fields, from old masters to impressionist and contemporary art, at the Ivanovsky Hall and Pashkov House in the centre of Moscow.
More especially she organised exclusive receptions, dinners and forums for Christie’s most loyal collectors to discuss individual artworks on a confidential one-to-one basis.
A couple of hours later, free from Ekaterina’s business chore, we strolled arm in arm along Piccadilly, a short walk from the auction house, which was strategically located, just a stone’s throw from the Royal Academy of Arts at Burlington House and the National Gallery on Trafalgar Square.
The weather was warm and sunny as the summer lingered on into the first days of autumn. I played the guide as we walked from Piccadilly across Green Park, stopping at Buckingham Palace, then along The Mall pausing at the Institute of Contemporary arts and the Mall Galleries, then on to Horse Guards Road, cutting through the arch onto Whitehall, and along to the Houses of Parliament and Westminster Abbey, and naturally Westminster School and Deans Yard.
Ekaterina was captivated by everything she saw and I felt all the more happier as she clung to me, as though she was afraid of getting lost, questioning me on everything she saw. To have this attractive woman so much younger than me so close, hanging on every word I said, thrilled me more than I’d dared to imagine. But there were doubts, what on earth attracted her to me, a man embarrassingly older than her father.
Ekaterina had married a man of her own generation, a soldier, whom she had loved, but younger men liked danger and her husband had died a hero’s death, as a soldier.
That had left her alone in a harsh world where she had struggled to rebuild her life and bring-up her daughter.
I