Twilight of the Banks

By Peter Hannon

In this contemporary novel a marshal in Italy's Tax Police sets in motion a Euro 420 billion asessment against 10 big banks for their foreign exchange trading in Italy, which is deemed a form of bookmaking and so subject to the country's Unified Gambling Tax. Other characters include a Hakka trader at New York's Goldberg Stein investment bank, who is an energetic philanderer and consummate mathematician, and his bosses, the happy-go-lucky Good Quant from India and the icy, calculating Bad Quant from Russia.

• Language: English
• Publisher: Peter Hannon
• Release date: Dec 16, 2014
• ISBN: 9781310359187

Peter Hannon

The author worked for 20 years in commercial and investment banking in Asia and Europe as well as for 15 years in the machine tool industry in Italy and so has personal experience with the subject and settings of his novel.

Book preview

Twilight of the Banks

Novel

by Peter Hannon

Published on Smashword

Copyright Peter Hannon

All rights reserved

ISBN: 9781310359187

Cover and Layout by Giuseppe Meligrana

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TABLE OF CONTENTS

TITLEPAGE

COLOPHON

LICENSE NOTES

AUTHOR

COVER

EXECUTIVE SUMMARY

PART I: 1 JULY 1988 – 19 MARCH 2015

PART II: SPRING 2015

EXECUTIVE WRAP-UP

APPENDICES

LICENSE NOTES

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AUTHOR

The author worked for 20 years in commercial and investment banking in Asia and Europe as well as for 15 years in the machine tool industry in Italy and so has personal experience with the subject and settings of his novel.

EXECUTIVE SUMMARY

The sun will set quickly for the banks, more specifically for the big money-center banks. There will be developments in the spring of 2015, and by year-end trading revenues for these banks will have dropped by 90%, back to the level of the late 1980’s. First National, the Germans, Goldberg Stein, Berkeley, and the others will be brought to their knees.

Behind this upheaval will not be the journalists, politicians, economists, sages, and regulators that for the last 6 years have variously editorialized, fulminated, pontificated, and litigated over the banks’ infamous sub-primes, their wild derivatives, their grossly overpaid executives, and their bailout by government in Europe and the United States.

Behind it instead will be a non-commissioned officer, a marshal (maresciallo), in Italy’s Tax Police (Guardia di Finanza, often known by its acronym, the Gdf).

He will not act alone. These are the six, including him, that will end almost all trading by banks through their demonstration of its equivalence to bookmaking: they are three Italians, an Italo-American, an Israeli-American (with dual citizenship), and a Hakka from Malaysia (inadvertently—not inadvertently Hakka or inadvertently from Malaysia but rather inadvertently involved here). Two of the Italians and the Israeli-American (at the time with only American citizenship) met in 1988 and already talked about the issues that 27 years later would lead to the aforementioned upheaval. The other three come into the picture much later.

Here is excerpted some relevant dialogue:

20 March 2015. Marco (Marco Di Segni, the above-mentioned Italo-American), you and, for that matter, Volcker have got it all wrong. Proprietary trading is a side show. I don’t even consider it real trading. Trading by banks, real trading, is not risky. And it is basically not complex. The details can be complex, but the underlying principles are straightforward. Trading is really very simple.

25 March 2015. "Oh, excellent, Maresciallo (Francesco Schillaci, the above-mentioned marshal of the Tax Police). We’ll tag these ten big banks with about Euro 400 billion in gambling taxes, resolve our government’s budgetary problems, and bring Italy up to an AA rating with Moody’s. And all this from the Guardia di Finanza, Comando di Rimini. We may even be promoted—or transferred to Sardinia."

18 April 2015. Henry (Henry Lee, the above-mentioned Hakka from Malaysia) sighed in exasperation at his now scantily clad colleagues. They had just tugged on their panties, with demonstrative irritation. Although Henry had explained frankly how he set up his trades—or at least the ones for account of Goldberg Stein—, the girls weren’t satisfied. They had been hoping to hear about his secret algos and thought Henry was holding back some key element. My algorithms may seem intricate, he persisted, but they’re simple, just like the underlying business. Trading is really very simple.

(Note: Conversations between Italians have been translated from Italian into English. Conversations with an American present were sometimes in English in the first place. In conversations and narrative an occasional expression in Italian or Italian dialect may slip in [with translation in parentheses], or, vice versa and inconsistently, an English translation will be used [with the original Italian in parentheses]. In a further variant, Italian expressions are sometimes left without translation, and the reader must infer their meaning from context. There are also expressions [with and without translation] in Latin, German, Yiddish, Mandarin Chinese [rendered mainly but not exclusively in the antique Wade-Giles romanization], and Malay. All in all, this book has an irritating admixture of languages).

PART I: 1 JULY 1988 TO 19 MARCH 2015

Chapter 1

Milan, 1 July 1988

A bright but hazy light suffused Foro Bonaparte from the streetcar stop at the Castello Sforzesco down to the Liberty-style building (or palazzo, according to the grander version in Italian) where First National operated its branch office. It was just past 8:30, and the air still had the pleasant tepor of the early morning, outside. Inside it was over air-conditioned.

Davide Morpurgo was already at his desk in the branch’s sala cambi (trading room), which he’d been running for several years. That morning both Giovanni Manicardi and Jonathan Roth were reporting in to begin their jobs as junior traders. Jonathan had been sent out from Head Office in New York, where he had already worked as a trader. Giovanni had no experience in trading and had been hired away from the audit department of an Italian bank. Jonathan was going to trade foreign exchange while Giovanni would trade on the funding side.

Since they arrived on the same day, Davide summoned them together to his office.

Would you prefer to speak English? he asked Jonathan.

I would appreciate that. Before coming over I took an intensive six-week course in Italian, but, so far, the only intensive part is my intense frustration at barely understanding anything in a normal conversation.

You don’t mind speaking English? Davide said turning to Giovanni.

"Not at all, Signor Morpurgo. I’ve had a little practice."

It’s Davide. In the trading room we all go by first names.

Even from what little they said, Jonathan could tell that they both spoke English well and both with an American accent. Davide, he later learned, had spent his summers with relatives in Manhattan and at camps up in the Catskills. Giovanni had spent a total of 15 days in England and had never been to the United States. He simply had an ear for languages and had picked up English in school, at the movies (in the few theaters that showed undubbed original versions), and with girls he met during his summer vacations. He shifted effortlessly into British—or American-accented English in accord with the company.

"To new employees I customarily give an introductory talk about our work. Today instead let me ask you to read a transcript of a presentation I gave at a seminar in London. I’d been asked to give an overview of foreign exchange trading for executives of the bank outside our field. I knew from personal experience with country corporate officers in Italy and around Europe that most of my audience would already have well-formed and somewhat romantic views of Fx trading as well as misguided instincts toward scoring a big coup on the correct currency position. So in an attempt at good-humored irony I entitled my presentation Fx Trading for Beginners. It opened with with a cautionary anecdote and then returned to basics.

I warn you, apart from the anecdote, it is humdrum, said Davide as he handed copies of the transcript (see Appendix 1) to Jonathan and Giovanni.

After reading for several minutes, they looked up.

Do you understand? asked Davide.

Yes, said Jonathan. I’d been trading in New York.

So do I, said Giovanni. It works just like my betting parlor in Rimini:

Really? asked Davide.

Yes, I suppose Fx trading is simpler than most betting and has the advantage of far higher volumes, but they’re both part of the same discipline. They both involve taking trades or bets on either side of a midpoint, with a spread or house edge in the operator’s favor, and keeping the positions as balanced as possible. It’s straightforward.

Yes, that’s it, said Davide. "Trading is basically simple. But, when I explain it in simple terms as I did for this presentation, my audience rolls its collective eyes. And, when I explain how some seeming complexity can be reduced to a simplicity, it fails to understand. In any case, when I make general presentations of Fx trading, they tend to be humdrum and mechanical but at the same time mystifying. They bore my audience and don’t disabuse it of its incorrect tendencies. This presentation was no exception.

"Maybe one of you could make a better general presentation of Fx trading. Possibly you could set it into a larger context or make some amusing comparisons or animate it with recurring follies or whatever but somehow make it more interesting and understandable. In the coming weeks you’ll be rotating around our department as part of your training. You’ll get a good overview. Prepare a write-up that explains trading better than I did and that I can use for my next presentation.

"That’s a challenge, and I’ll make a bet out of it. If either of you succeeds, I’ll host a dinner for both of you with dates at Aimo e Nadia or Gualtiero Marchesi. Otherwise, the two of you will host that dinner for me with my date. I’ll give you a month. You’re not allowed to turn the bet down because a) I’m your boss, and b) I’m giving you 2:1, dinner for