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18 July 2017

The Power of Trust



This article was written By David Gaddes. All views and opinions are strictly his own.

During the early 1980s I was employed by an organisation based in London with offices in Queen Victoria Street in the City. The offices were small but recently renovated and located adjacent to the entrance to Mansion House tube station. I believe this UK limited company was the first of its kind.  By and large, if you traded metals with eastern Europe at that time you either dealt with the State Foreign Trade Organisation based in the country you were dealing with or the Embassy or Trade Delegation of the relevant country. The incorporation of this company was a change from that. I was invited to join this UK limited company formed by the USSR's State.Trading Organisation for metals. My primary role was to handle the buying of the Soviet Union's tin requirements and the sale of nickel and aluminium. In addition to selling and sourcing I was encouraged to use our considerable presence in base metals to produce foreign currency profits by trading independently of the purchases and sales made on behalf of the Soviet industry.

To give you an idea of the size of this company's business imagine one company in New York handing the total exports and imports of the USA's base metal business. At that time I represented the largest single buyer of physical tin in the world. I purchased material mainly from traders and the Buffer Stock Manager for shipment from Rotterdam and Penang to Leningrad and far eastern Soviet ports. The company was not a member of the Sixth International Tin Agreement and was therefore able to be extremely flexible in its dealings.The spin-off trading based on that activity was larger than the procurement required for the industry in the Soviet Union. All this took place prior to the Tin Crisis in 1986. 

However I digress. My story is not about tin but cobalt. I was not responsible for sales of cobalt, my Russian boss was. I got to know him pretty well and he was a character. One of my many additional responsibilities was to take him to see all of the LME brokers that I knew to try to obtain the lumpy credit lines that we needed to support our LME activity. My organisation liked using the LME; but not LME margin calls, and paying them even less. We ended up with 10 LME brokers and one of my jobs was to rotate and clear business with the brokers to steer clear of the dreaded LME margin call. I remember the first time I told the financial director that we had a rather substantial call looming as if it was yesterday. I can see his face as clear as day. I told him it was highly likely we would have to pay it by the end of the week. He looked at me as though I had taken leave of my senses and then launched a major internal investigation. They were interesting times and major learning curves for all, including me. There were many lessons to be learnt.

So one fine day my boss and I had just enjoyed a wonderful boardroom lunch in Gresham Street hosted by the Chairman of an LME ring dealing member. The Chairman asked my boss what the capitalization was of the newly formed London company. " The capital is its name " my boss  proudly declared. I am not sure if that reply would add much weight to a credit line application today. Strangely enough it did then.

When we left that lunch my boss told me he had to see a large cobalt buyer about an issue he had. He asked me to go with him. About 15 minutes later we were in the office of the gentleman who weeks earlier had bought a rather substantial tonnage of cobalt from my boss at a fixed price on a rising cobalt market. In fact the price of cobalt since the trade had gone through the roof. The conversation between my boss and the buyer went something like this:-

"It is a pleasure to see you my friend. What can I do for you?" said the gentleman.

"Do you remember that cobalt I sold you a few weeks ago ?" my boss replied.

The gentleman looked at my boss without emotion. He then turned on his chair to his left and pulled open the middle draw of a metal filing cabinet. He flicked through the files and pulled out one which he opened on the desk. He looked at my boss again, picked up the copy of the contract and passed it to him.

"Do you mean this one ?" he said.

My boss glanced at the contract and said "Yes. That's the one. Can we just forget about it ?".

Silence reigned. It seemed to last 2 or 3 minutes. Upon reflection, it was probably not  that long, but it seemed like it at the time.  The buyer just stared at my boss during without saying a word. 

When he finally spoke he said :

“Do you know what the difference is between the price I paid you a few weeks ago and the price of cobalt today? Do you know how much money my company will lose if I just forget about it?” He quickly punched numbers into his calculator and informed my boss of the loss if  the contract were cancelled.

My boss responded by telling him that the Ministry were not very happy with the sale of cobalt, especially the price, and he would be very grateful if he could help him avert the wrath of the Ministry.

The buyer let out a sigh. He then scribbled something on a piece of paper which he handed to my boss. Then, very dramatically he picked up the copy of the contract from his desk, tore it into several pieces, and threw it in the wastepaper basket. My boss smiled and the man continued.

"Next month I am coming to Moscow to see you and your colleagues to buy some aluminium and you are going to pay me that back,” he said, jabbing a finger at the piece of paper in my boss’s hand. 

I mentioned lessons to be learnt earlier. Maybe the biggest lesson learnt from this story is one should never underestimate the power of trust between two human beings.

I wonder if this could happen today given the regulation in our industry ? 

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