Bill Browder - Red notice

As if these financial gyrations weren’t enough, my marriage was also slowly deteriorating. Ever since the Sidanco incident, Sabrina had grown more and more angry with me. She saw my decision to fight Potanin as a betrayal and she wanted me to move back to London. I reminded her that in spite of all the scary stuff, moving to Moscow was what she had agreed to, but she didn’t see it that way. She was also completely unsympathetic to my arguments about my duty to my investors.

We were having a difficult time finding any meaningful way to connect. Aside from taking care of David, which she did beautifully, the only part of our marriage that she was engaged with was planning our family holidays. These were the only times that Sabrina and I spent more than a weekend in each other’s company, so I gave her full rein to organize whatever she wanted in the hope that these trips would draw us closer together.

Earlier in the summer, before everything was falling apart in the Russian financial markets, Sabrina had booked a suite at the Villa d’Este Hotel on Lake Como in Italy. A suite at this five-star hotel cost $1,200 per night, which was more money than I’d spent on my entire postcollege summer vacation. I was always uncomfortable with these extravagant holidays, whether I could afford them or not. My mother, who had fled the Holocaust, had instilled in me the idea that spending money on luxuries was stupid and irresponsible. Given my circumstances, this was irrational, but I still found it hard to pay $30 for a continental breakfast. I would often feign an excuse to skip breakfast and ask Sabrina to bring back a few rolls because I felt so guilty about «wasting money».

This specific holiday could not have come at a worse time. The markets were moving up and down 5 percent a day, and I shouldn’t have been more than a few feet from my desk. But if I’d canceled, it would have thrown my marriage into complete crisis. So in mid-August I flew to Milan, got in a car, and met Sabrina and David at Lake Como.

The contrast between Lake Como and Moscow was staggering. Where everyone was aggressive, angry, and tense in Russia, everyone was tanned, relaxed, and happy in Italy. We checked into our lavish two-bedroom suite, and after getting settled I went to sit on the terrace. I saw the crystal-clear alpine lake and the rolling foothills of the Alps and watched as people splashed and laughed in the water. The air was still and warm and smelled of pine trees. None of it seemed real.

I tried to clear my head and not obsess about every twist and turn in the market, but it was impossible. The only peaceful moments came at the crack of dawn, when David woke up. I would dress him and fill his bottle with milk, and we would share a couple of quiet hours, walking around the hotel’s manicured grounds while Sabrina slept.

I really enjoyed these intimate moments, but then on August 18, after our morning walk, when David and I were both on the balcony overlooking the lake while Sabrina was taking a bath, Vadim called in a state of panic from Moscow.

«Bill, it all seems to be happening».

«What’s happening?» I asked, not understanding the context.

«The ruble is in a free fall. The government is no longer supporting the currency. Analysts are saying it’ll level out at seventy-five percent down».

«Oh my God». I put my water bottle on the metal table. I was utterly shocked. A dark bird whisked past, banking hard toward the water. David made a small, happy sound.

«It gets worse, Bill. They also announced they’re defaulting on domestic debt».

«What? Why would they default when they can just print money to pay it back? That doesn’t make any sense».

«Bill, nothing these guys do makes any sense», Vadim said in a resigned tone.

«How are the markets taking it?» I asked, preparing for the worst.

«It’s a complete meltdown. The bids have evaporated. A few sporadic trades are going through anywhere from eighty to ninety-five percent down».

I ended the call without saying anything else, picked up David, and walked inside. Not in my worst nightmares had I seen this coming. Before my conversation with Vadim, I thought the market had hit bottom.

I knew in that instant that I had to get back to Moscow.

When I told Sabrina, she asked why I couldn’t just take care of it from the hotel. I tried to explain the gravity of the situation and that it was imperative that I be in Moscow, but she just couldn’t understand. I packed hastily, and when I was ready to leave, I tried to hug Sabrina, but she rebuffed me. I picked David up and gave him a tight squeeze.

I got back to Moscow that night, and when the dust finally settled the fund was nursing a $900 million loss — a 90 percent drop. That was bottom.

It’s hard to describe what it’s like to lose $900 million. I could feel it in the sides of my stomach, as if I had been emptied out from the inside. For weeks afterward, my shoulder blades tingled unpleasantly, as if I literally carried the loss on my back. And it wasn’t just a financial loss. I had spent the previous two years extolling the virtues of investing in Russia and now I had let all of my investors down in spectacular fashion.

It was also a public humiliation. The same journalists who’d clamored to showcase me on the way up were now desperate to go into all the gory details of my downfall. It was as if I were the victim of a horrible car accident and every passerby was slowing down to see the carnage and the burning wreck of metal.

Yet in my mind, I had only one choice: to stay. I had to make back all the money I had lost for my clients. I wasn’t going to leave Russia with my tail between my legs. That was simply not how I wanted to be remembered.

I hated myself for all that had gone wrong, but remarkably many of my clients didn’t. They had much bigger problems. Because domestic Russian government bonds had yielded more than 30 percent before the crisis, and most people viewed bonds as less risky than stocks, the average investor in my fund had five times as much invested in the Russian bond market as in the Hermitage Fund. Before things went off the rails, the bond returns were so enticing that many investors used leverage to buy even more. While my clients understood that in the worst case their investment in Hermitage could go down to zero, never did they think that their Russian bond portfolios could drop to nothing. Yet this is exactly what happened to many of them.

One of the biggest casualties was Beny Steinmetz, the Israeli diamond magnate who’d set me up with Edmond. As a result of his bond losses, he had to divest his interests in the Hermitage Fund and the company. Losing Beny as a partner was unfortunate, but, thankfully, Edmond was still in the picture.

Or so I thought.

In May 1999, as I was on a weekend trip to London, I picked up the Financial Times and read that Edmond Safra had sold Republic National Bank to HSBC, one of Britain’s largest banks. Like Beny, Edmond’s bank had also bet heavily on Russian bonds and lost. In an earlier phase of his life, Edmond, who had been through more market cycles than I could count, would have ridden this out, but over the previous few years he had become sick with Parkinson’s disease. In the time that we were partners, I could see a steady deterioration in his condition, to the point that it was difficult even to have a conversation with him. For some reason Edmond hadn’t drawn up a succession plan, so if he bowed out, there was nobody to take over. Because of this, he was forced to sell the bank as quickly as he could and HSBC stepped in to conclude a deal.

Edmond’s departure hit me hard. He was one of the world’s most brilliant financiers — and he was no longer involved in my business.