Darke Mission (5 page)

“Fine,” responded JJ. “Toby, that's your target and your job. Spend the next half hour or so preparing your call list. Once you've done that get a nap on the sofa in my office. You're going to need to be as sharp as a tack from the off,” instructed JJ. Toby stayed where he was and browsed through his laptop to begin the process of listing the victims he'd try to sell his bonds to.

JJ continued. “We've still got €300 million of toxic Greek junk even if the first part of the plan works. If Greek yields go from 10% to 20%, which they surely will immediately on the first hint of a parliamentary showdown, we'll lose €75 to €100 million, potentially more if our information turns out to be right. We can't do anything about that; we have to hold them, not least of which because liquidity will dry up until the picture is clearer. So Yves-Jacques, here's your task. This is a multi-faceted game. You need to run your correlation and variance-covariance matrix model programs. We need to have a target of liquid macro assets that are inversely correlated to the price of Greek 10 year bonds. These asset markets need to be open from the first thing this morning till at least the release of US NFPs at 1.30pm our time. We need to have more than one asset available for selection because, again, we don't want to tip-off the market vultures that there's something afoot. As you know, every asset has different volatility characteristics. 100 contracts of gold futures are not the same as 100 contracts of silver futures. Once you've got the target list, run it through my portfolio optimisation program and that will spew out how much of each asset we need to buy to match the expected loss on the Greek bonds. Got it?” enquired JJ of Yves-Jacques.

“Yes I can do this. It'll take me an hour or two to run these programs in their entirety,” said the French man awaiting confirmation from JJ that the time needed was alright.

“That's fine,” said JJ. “It's 3am now. If all hell breaks loose before our target markets are open then we're stuffed anyway. We may as well try to do it right. As a starter, Yves-Jacques, make sure you include S&P 500 futures, gold, the yen and one other liquid equity market that we can short. Don't include any bonds. While there may be a flow into Euro Bunds or US Treasuries out of Greek bonds, the markets will worry about the break-up of the euro, and if the US jobs numbers are good, Treasuries will drop. We should be set up to short the S&P 500 and buy gold and the yen. Once you've got the bare numbers let me see them. Toby, you'll have a bit more to do then, though at least with the target list programme you can involve one or two of the guys on the trading desk.”

So that was the plan. It wasn't perfect. You can never match the profit/loss on trying to hedge one asset against a selection of other assets. In the financial crash of 2008, risk management tools like VAR (value at risk) and optimisation programs just blew up, they were worthless, as Lehman Brothers discovered. The key to success of JJ's plan was stealth. The less chatter generated by their selling and buying programmes, the more chance the calculated hedges would hold up, the more chance the targeted assets would remain liquid and, critically, the more chance that Greek bonds wouldn't go prematurely terminal. The structure of JJ's plan needed to be robust, Yves-Jacques financial programs needed to be efficient and accurate and Toby's trading skills needed to be honed to perfection. Black Friday or Golden Friday – who knew? Well, the world would in a few hours one way or the other.

* * *

It was 8am, on Friday, 13
^th
December. The first floor of MAM's offices was buzzing. This was the trading floor. If you weren't at your desk by 8am you weren't important in the scheme of things. The first floor accommodated around a hundred people, about fifty traders, twenty-five or so quants and the balance made up of support staff. It was open plan, with a gazillion screens, moderately less desks, all wooden beige with metallic legs, and lumbar supporting modern chairs. Off in the far corner, Thomas Meltzer, MAM's chief economist, was giving an early morning interview for CNBC Europe. US jobs data was the main topic. Meltzer was German, about 5ft 11in, with straight blond hair and vivid blue eyes, only partially hidden by his gold rimmed specs. His English was so good he could tell jokes in it.

JJ nodded to Thomas as he sauntered by. He liked the German, his work was more thoughtful than most and he had manfully resisted the modern day temptation to have a view on everything and a ‘sound-bite' for everybody. JJ was glad Thomas was pontificating on the upcoming US non-farm payroll numbers because that meant that there was no Greek news of note. JJ had already had a brief chat with David Sutherland, the head and founder of MAM. He was well into his sixties now but was still very sharp. His skill was in delegating, a skill never underestimated by Ronald Reagan, in JJ's view America's second most effective President of the post World War II era. Sutherland was a little shorter than JJ, less hair, more body mass, but better teeth and clothes. He was old Etonian and Oxford with good political contacts. JJ liked him mainly because he just let him get on with his job. They had little in common apart from a desire to grow MAM from strength to strength. Sutherland was concerned by JJ's news on Greece but a lot calmer when the Scot had outlined his plan. Now JJ had to discover whether his plan was up and running or not.

Toby's desk was at the far end of the trading floor, near the quants. He liked it there mainly because he had a good view over St. James's Square from the floor to ceiling windows, one of the few non-original aspects of the building's fascia. JJ walked slowly towards him, hoping to create an atmosphere of casual intent rather than alarm if he had rushed up to the head FX and commodities trader.

“How's it going, Fathead?” asked JJ. He thought it would further add to the casualness if he called Toby by his nickname.

Toby looked up. He wasn't surprised to see JJ there. He was on the phone to one of the dealers so put up his arm with one finger raised, not the middle one of course, to signal that he'd be with JJ in a moment. Phone call over. “It's going well,” said Toby in a voice low enough that neighbours could not hear any detail above the office hubbub. JJ had a small smile as he sipped on his take-away Starbucks double espresso macchiato.

“I've sold more than two-thirds of the €120 million bonds, but I need to pause for a bit. A couple of the more alert dealers asked me if anything was up. I just said we were doing a bit of portfolio rebalancing before year end but that we were maintaining our core holding.” The truth in fact but not spirit thought JJ. “There is one thing, though,” Toby said. “I haven't seen Yves-Jacques or his list of assets to buy. Have you got it?”

JJ's smile was a tad smaller now. He had seen Yves-Jacques about an hour ago and they had agreed the target buy list. Toby should have had it by now. “Give him a ring, Toby, and ask him to hotfoot it down here no matter what he's doing. It's 8.30am and the clock's ticking. We'd better be too.”

Within two or three minutes, Yves-Jacques could be seen scuttling across the trading floor heading for JJ and Toby. Without being obvious about it JJ signalled to the young Frenchman to slow down. Stealth was still the order of the day.

“Yves-Jacques, where's our list, Toby needs to get cracking?” asked JJ without too much urgency in case it freaked out the young analyst.

“I've got it here,” he replied, clutching a few pages of hand written instructions. “I was delayed because I decided to re-run your optimisation model program JJ as it might not have been properly set up for relative value trades.”

JJ nodded, he was a good mathematician and econometrician but it's possible that analytics had progressed since he designed MAM's portfolio optimisation program three short years ago. “Go on,” said JJ.

“Well, last night or early this morning you mentioned that we should include one other liquid equity market to short as well as the S&P 500. If we had done that in the size we needed to do it, it would have breached the fund's internal risk rules.”

JJ realised they didn't have time to get down to the nitty gritty of the program's details now so it was whether or not he trusted Yves-Jacques and whether or not he had a solution to this glitch. “I take it from the fact that you've not disintegrated into a greasy spot Yves-Jacques that you're confident you're right and that you have a recommendation to keep us on track,” said JJ.

“Yes, JJ, I do,” replied Yves-Jacques, confidently, seemingly comfortable enough with no more ‘Mr Darke' as he addressed JJ. “If we put on a relative value equity trade, in particular we go long the SMI (Swiss Market Index) and short the MIB (Milano Italia Borsa) we reduce our overall risk, break no rules and we can do it in the same size as before.”

JJ contemplated this recommendation for a few seconds. Switzerland wasn't in the EU or the euro. As such its equities tended to fare a lot better when Eurozone troubles popped up. Italy, by contrast, was in the euro, albeit crying a lot about being in it now and the shares on their stock market, the MIB, would get hammered if the Greek drama unfolded the way Marcus Whyte had warned.

“OK Yves-Jacques, sounds good,” said JJ. “Give your list to Toby. Toby you get cracking with your guys and let me know how it's going. No emails or BBMs. Use your personal mobiles or come and see me if anything significant is happening different to our plan.”

Toby nodded and turned back to his screens and headset. Time to give J-K a call he thought. Those two boys better not have stayed at Nobu too long.

“Yves-Jacques,” said JJ. “You come with me. Let's look at my flawed optimisation model.” Yves-Jacques smiled. He knew he was right and he knew JJ wouldn't mind if he was. After all, he had passed the augmented Norman Tebbit test.

The rest of the day went well for JJ and his colleagues. J-K had come through for Toby, Jay had sold over 10,000 contracts of S&P 500 futures before the US jobs data was released. He also managed to put on Yves-Jacques's relative value trade in size and that was working a treat. Kai bought 4,000 gold contracts for Toby and went short a yard and a half of USD/JPY which ended up having a 2.5% move on the day. Toby had shifted all €120 million worth of Greek bonds by 10.30am. US jobs data came out on the dot of 1.30pm, with non-farm payrolls up by 315,000, moderately above the consensus expectation.

The news on the Greek bailout vote started hitting the tape by 2.30pm GMT. Marcus Whyte's brother-in-law's information was spot on. There was going to be an extraordinary parliamentary vote that night, some of PASOK's MPs indicated that they no longer supported the majority party's policy on the bailout and that they would support the main opposition party. Greek bonds went terminal. Having started the day yielding 10.3% their closing yield was 22.6%. Holders of Greek bonds had experienced a catastrophic loss on the day, and probably worse when markets re-opened the following Monday. MAM had suffered a microscopic loss on the day but JJ's plan had worked. The loss was a few million, no more than it would have been on a normal, quiet not so great day. He was well satisfied. Toby and Yves-Jacques had been brilliant and David Sutherland had congratulated them personally on a job well done. It was 4.30pm. JJ reclined on his ergonomic leather chair, feet on desk and drinking cool water from his evian bottle. He tended to be all patriotic about his water consumption and more often than not he'd have Highland Spring bottles in his office fridge. He was partial to the French today, however, so he thought he would go with evian.

JJ was looking forward to the weekend. He hoped Cyrus wanted to play some real, as opposed to virtual, tennis on Saturday. He would still get beaten as Cyrus was good at proper tennis too but at least they would get some exercise. It may be early winter but the hard surface at Burton Court was all year round playable. Before he set off for the day JJ thought he'd take a quick look at his email inbox. The activities of the past eighteen hours or so had meant that he hardly had any time to look at his Outlook page. As he scrolled through his dozen or so unread mails, two stood out. One was from his G.P. Probably just an invoice with an inflated bill simply for telling him he was in good shape for a forty-three year old. He liked his G.P. Dr Guy Marshall, he was about sixty years old and had a straightforward and pleasant manner. As a patient, JJ wasn't a lot of trouble to Dr Marshall, the only time he had needed any treatment in the past year was to get some wax syringed from his right ear. Apparently, that meant you slept most of the time on your right side.

JJ opened Dr Marshall's mail.

JJ had no idea what a PSA score was. He was old school Glaswegian when it came to health. If it wasn't broke he had no intention of trying to fix it. He felt good, trained hard and, most of the time, ate well. He'd check it out on Sunday, if he could be bothered.

The second unopened email was from Neil Robson, which was much more intriguing. Neil was the Financial Secretary to the Treasury. He reported directly to the Chancellor, Jeffrey Walker and was regarded by many in Whitehall as the sharpest tool in the box when it came to Britain's financial matters. More pertinent from JJ's perspective was that he hadn't heard from Neil since their time together in MI5.

“It is,” said Carolyn.

“No, it isn't,” said Dannielle.

Carolyn Reynolds peered closer to her screen. To random passing people, not that there were any of those types at this facility in Springfield, the screen looked like a black and white jigsaw made of spaghetti with lots of pieces missing.

“It's a Borei, Dannielle, I tell you,” insisted Carolyn.

“It's definitely not a Borei,” retorted Dannielle with even greater emphasis. “Look, Boreis are 560ft long. That yard has never handled anything more than 135ft long. They don't have the facilities and they don't have a Borei. Even if they did it would be on the east coast, in one of the larger, more technologically advanced bases.”

Carolyn looked again. She had known Dannielle for nearly two years and she was very, very good at her job. When it came to image analysis she was second to none. Well, thought Carolyn, maybe second to one.

“OK, let's take it to Henry for a third opinion,” said Carolyn.

“Fine,” said Dannielle moderately peeved that her colleague and friend wouldn't take her word for it. “The big Maasai will agree with me,” pronounced Dannielle with a mischievous smile on her face.

“If the big Maasai agrees with you, Danni, it'll only be because he thinks you're cute,” replied Carolyn. She figured that would discomfort Dannielle a little since she knew that Henry Michieta liked her, but as she was a total professional, that particular liking wasn't going anywhere outside of the big Maasai's head.

“Low blow Cally,” muttered Dannielle in jest. “I'm so right honey, that I'm prepared to bet you a steak dinner with all the trimmins,” she said with a mock Southern drawl, carved straight from the shanty hovels of
Deliverance.

* * *

Later that night, as Carolyn was filling her somewhat small mouth with a special order Chateaubriand, well done, with fries and shitake mushrooms at Marty's Steakhouse on Old Keene Mill Road, she looked up at Dannielle, with a superior smirk. “Told ya,” she managed to splutter out.

“Henry didn't say it was definitely a Borei,” replied Dannielle looking moderately crestfallen at the thought of the $80 plus bill she was going to be landed with in an hour or so. “He said that the image was consistent with a Borei but could be several Sang-O's nose to tail.”

“Fore to aft is probably what you're looking for Danni-girl when it comes to boats,” interrupted Carolyn, still smug and still eating.

“Whatever,” said Dannielle spikily. “In any event all he said was to do more research and analysis and, I might add,
and
he agreed with me that in the possible event that it was a Borei it should be parked on the east coast.”

“Berthed,” interjected Carolyn.

“What?” said Dannielle, loudly.

“If it's a boat it's berthed, not parked,” said Carolyn, fully realising that her annoyance factor was growing pari passu with the bill.

“Good thing I like you Ms Reynolds,” replied Dannielle “because you're one annoying bitch.” With that, they both laughed heartily, knowing that the next few days would yield the truth about that spaghetti image on Carolyn Reynolds' computer.

The Borei class submarine is a nuclear-powered ballistic missile submarine, made in Russia for the Russian Navy. They were first developed in 1996 and built at the Northern Machine-Building Enterprise (Sevmash) in Severodvinsk. The Russian authorities intended that this class of submarine was to be the cornerstone of their fleet until at least 2040. There are different configurations, but the three already built out of a planned ten, were approximately 170 metres long with a beam of 13.5 metres. It carries about 100 crew, has a submerged speed of over 30 miles per hour, and has unlimited range, only constrained by food stores. The sub has a desalination plant on board so it doesn't need to surface to get essential fresh water.

The submarines were re-designed under Project 955 to accommodate Bulava submarine-launched ballistic missiles (SLBM). The range of these missiles is 5,000 to 10,000 miles, depending on the variant on board. The Bulava's advanced technology meant that it could carry up to 10 hypersonic, individually guided manoeuvrable warheads. It has mega evasion capabilities making it highly resistant to most missile defence systems. The Bulava has programs of evasive manoeuvring, mid-course countermeasures and decoys. Each of the 10 warheads has a yield of 100 – 150 kilotons. That was firepower. It had taken only one 12.5 kiloton nuclear weapon to destroy Hiroshima in Japan in World War II. The distance between Vladivostok, where the Boreis are based, and Washington DC is 6,500 miles, a fact not lost on Carolyn Reynolds. These facts and figures were well known to the US military, their intelligence forces and security services. The basic information was not difficult to find and through satellite tracking and imaging the whereabouts of these warrior submarines were well observable under most circumstances. What was preying on Carolyn Reynolds' mind though, was not that she had probably identified a Borei class submarine, but that she had identified it on the west coast of North Korea, not the east coast of Russia.

The National Geospatial-Intelligence Agency (NGA) is based in Springfield, Virginia and also has other facilities in St. Louis, Missouri. The NGA employs professionals from a wide variety of specialisations including aeronautics, navigation, topography, imagery and geopolitical analysis. The NGA team's most treasured result to date was their crucial involvement in Operation Neptune Spear, which culminated in the killing of Osama bin Laden at a fortified compound in Abbottabad, Pakistan on 2
^nd
May 2011. The NGA works with the US Department of Defense, Homeland Security and, predominantly, the CIA.

Henry Michieta was studying the report of officers Reynolds and Eagles. He was sitting upright at his desk in his office on the third floor. Henry's office was voluminous, as befitted a section chief. The NGA building wasn't limited in space, with all of its 2.3 million square feet and an atrium significantly taller than the Statue of Liberty. He was as black as the ace of spades. Born in Alabama, forty-five years old, and hugely proud of his African heritage, which showed without doubt that he was descended from the Maasai tribes on the west coast of Kenya. At 6ft 4in and athletically built he knew his lineage was unlikely to be disputed by anyone. He shaved his head and had an almost imperceptibly small, clear diamond earring in his right pierced ear, both signs that the Maasai ways were still in his blood. He was born in Mobile and attended the University of Alabama in Tuscaloosa where he studied Aeronautical Engineering, then a Masters in Communication and Information Sciences. He was bright and he was powerful, and had been a member of both Alpha Lambda Delta and his college football team.

It wasn't Henry's unit that had been directly involved in pinpointing bin Laden's Pakistani hideout. As a proud and loyal American he didn't much care who took bin Laden out, he was just glad that somebody did. As section chief in the geopolitical and imagery division of the NGA he was, nevertheless, a bit deflated that it was one of his colleagues who scored on that one. Directly from university Henry joined the CIA's junior officer training program. Most of his training was at The Point as the facility at Harvey Point, North Carolina is known. His basic course lasted a year. He excelled in surveillance and cryptography but, for a large man, struggled with paramilitary training and the physical demands of other tradecraft. His senior evaluators at The Point had been quick and accurate in their assessment of the young Maasai and had earmarked him for the NGA, while he was still in his mid-twenties. Now, twenty years later, he was in charge of about fifty officers who were assigned to a plethora of surveillance and interpretive roles. He loved his job and he felt lucky to have it, but deep down in his Maasai warrior heart he wanted to be on the NGA's roll of honour.

Today, though, indeed in about ten minutes, he was going to have a meeting with officers Reynolds and Eagles. Cute as they were, especially Dannielle Eagles, that was an event that would likely require him to have a nuclear strength coffee right now.

Carolyn and Dannielle were both twenty-five years old, both from the east coast of the United States and both slim and pretty. Dannielle at 5ft 8in was taller by a couple of inches, with darker, straight hair, but Carolyn wore bigger heels to compensate and had somewhat fairer hair. Carolyn had her dad's grey-green eyes which seemed to go vibrant bright green when she was angry while Dannielle's were sultry dark brown. They had trained together at The Farm, the CIA's other training facility at Camp Peary, Virginia and their skillsets definitely complemented each other. On her training course, Dannielle stood out in analytical tradecraft, interrogation and surveillance. She was also a regular star in any honey trap role play, which much amused her colleagues who knew to keep their distance in the real world. Carolyn's standout skills on the training course were her ability to maintain cover under duress, amazing for a slightly built girl, and steganography, essentially obscure code writing that only the sender and intended recipient can understand, even if seen by the unintended. Both could shoot to kill and physically disable an assailant without requiring any weapon. They were, Henry thought, a tour de force, if only they didn't speak! Henry was trying not to be sexist but he often got ear-ache from their machine gun rat-a-tat-tat delivery. Carolyn was worst, or best depending on your viewpoint. She could talk seemingly forever, without a single breath. Had she been a man Reynolds could have been a star in the Navy SEALs underwater demolition squad, mused Henry, just as the two in question came barrelling into his open door office.

“Sit down ladies,” welcomed Henry.

Carolyn's rear had just about made contact with the chair when she blurted out, “Henry, I'm more convinced than ever that this is a Borei. I've had the satellite imagery checked by the forensic image guys and they confirm that it seems to be one continuous vessel of around 560ft in length. That's exactly the length of a Borei class submarine. The beam width is greater than that of the Sang-O II class sub that is, or maybe was, the best the Korean People's Army Naval Force have or had. So, although Dannielle thought that it might be three or four Sang-O's forward to aft,” Carolyn glanced cheekily at Dannielle at this point, “it isn't.”

“What do you think Dannielle?” asked Henry.

“Carolyn's probably right that it's not a bunch of smaller subs in a line, on further inspection, but we seem to have reliable information that Russia has built only three Boreis so far, out of their planned ten, and they're all accounted for. Two are in dock at the Vladivostok complex and the third one is on manoeuvres in the Sea of Japan. I conclude,” noted Dannielle, glancing back at Carolyn in a fashion that said I'm about to go one up, “that barring further information this isn't a Borei.”

“At the risk of being simple,” interjected Henry, “can't we just commission one of those drones to fly over and take a look?”

“No, we can't,” responded Carolyn. “North Korean defence systems around naval bases are well capable of downing one of those drones before it gets a chance to take a decent photograph. In any event, there's some kind of floating shed or roof over the sub to render that route pretty useless since the drone's imaging capability, if obscured, is less than the satellite picture we already have.”

Henry looked suitably chastised but, with Reynolds, he knew that it wouldn't end there.

“I've been in touch with one of my pals at Langley,” continued Carolyn. “He works in the Middle East section, specialising in crude oil movements. He says they regularly take satellite images of land based oil fields e.g. in Saudi Arabia, to gauge the depth of oil in any given fields and wells, just in case the Saudis try to pull any fast ones re oil quotas. It didn't take me long to convince him to divert the CIA satellite for a quick tour over North Korea's west coast. Here's the image.” Carolyn handed it to Henry.

“It's very colourful, Reynolds, but what does it mean? It looks like one of my daughter's colouring in books.” Henry didn't have the nerve, at this point, to ask how Carolyn managed to get a CIA satellite diverted.

“As you know, Henry,” said Carolyn giving her boss the benefit of the doubt, “satellite imagery is different from taking a photograph. A photo can only record what our eyes see. A satellite image can record infrared and ultraviolet light which we can't see, as well as the visible spectrum. Our computers then assign colours to the invisible spectrum to produce a near photograph. Petroleum geologists sometimes use this type of analysis to see how much oil is in a well, something that can't be seen from the surface. Sometimes, if the geologists really want to get the detail of what's going on under the surface without digging, they use this imagery and computer models to build a 3-D seismic cube. This can then be pictorially sliced vertically or horizontally to measure exactly what's going on underground. This is such an image taken from Langley's satellite positioned over Haeju, south of Pyongyang.”

Dannielle and Henry looked at the colourful picture intently.

“And this tells us what?” asked Henry.

Dannielle realised that this was the further information she needed. She interjected in an attempt to recover some standing on the matter. “It tells us, Henry, that there's a Borei class nuclear submarine parked, I mean berthed, off the west coast of the Democratic People's Republic of Korea.”

Needless to say the conclusion of that meeting triggered significant activity among the intelligence agencies and the US military. Henry wasted no time in sharing Reynolds' and Eagles' report with his boss at the NGA who, in turn, got in touch with his counterparts in the CIA and Department of Defense. A mere two days later a high level meeting was scheduled at CIA HQ in Langley, Virginia, a few miles west of Washington.