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The holiday mood had been forgotten when Robert Maxwell met his son in his penthouse at seven o’clock on Sunday morning, 6 January 1991. Over the previous two weeks, Kevin seemed to Andrew Capitman, the banker, to have matured from gofer into joint manager. In his conversations with bankers, he was giving the impression that his was a major corporation suffering only transitory problems. But the secret purchase of MCC shares to stabilize the price was proving unsuccessful, and newspapers were speculating that an American-led coalition would at any moment launch an attack against Iraq in the Persian Gulf to free Kuwait from occupation, triggering chaos in the world’s financial markets. These were the worst conditions, undermining Maxwell’s hopes of recovery.

Among those who sensed Maxwell’s increasing problems was John Holloran, the manager of BPCC, the former printing division of Maxwell’s empire, who had bought the company in a management buy-out in January 1989. Ever since, Halloran had been pressing for payment of £97 million owed by BIM to the BPCC pension fund. Maxwell had resisted, but the sum was to be paid in July 1991. In the meantime, anxious to get more cash, Maxwell had persuaded Cook that it would be better eventually to pay BPCC in money because share prices would be falling. So BIM began selling shares. As the proceeds arrived, they were deposited on Maxwell’s orders in the account of RMG, his private company. From there they were used to repay his private debts. Halloran, with excellent sources in Maxwell House, detected the crisis and reminded the Publisher that he expected prompt payment with interest in the summer.

The financial crisis was no longer a secret. Jean-Pierre Anselmini recognized the critical sign: bankers were telephoning daily and Kevin was often avoiding their calls. Yet, like so many others, he believed that the Maxwells’ fortune in Liechtenstein could cover the debts. After considerable negotiating effort, Anselmini proudly presented Maxwell with a plan to repurchase MCC’s debt at a 25 per cent discount from certain European banks. ‘Can’t do it,’ said Maxwell. The profitable deal could not be completed because there was no money. Anselmini, like Ron Woods months earlier, was still too gullible to understand. Maxwell instead wanted another deal. Proffering a document written by Robert Bunn explaining all the outstanding loans of the private companies, he asked: ‘Can you arrange to get these restructured? Just as you did for MCC?’

Bunn’s report suggested that those private companies had debts of £1 billion against assets of £2 billion. Naturally, Maxwell did not confide that some of the assets belonged to the pension funds. Even so, Anselmini reported shortly afterwards: ‘It’s impossible.’ Maxwell’s disappointment was only too plain. ‘I don’t have a magic wand,’ added Anselmini. The mood in the City was deteriorating. A wave of financial scandals, the deepening world recession and the threat of a gigantic leap in oil prices because of the Gulf war had made bankers naturally wary. Now Anselmini’s telephone calls to the banking village had sparked suspicion. Bankers began contemplating Maxwell’s stricken finances and noted a crop of adverse newspaper reports. The burden to find a solution was firmly placed upon Kevin.

That month, Kevin began negotiating the extension of loans for MCC and the private companies with dozens of the banks. His negotiations with Julie Maitland persuaded her to write a new strategy paper about MCC (following one composed the previous July). Once again the bank, which had accepted £100 million in collateral for private loans, failed to take account of the fact that the shares were registered in the name of BIM. Some would claim that the omission was proof of negligence. The bank would plead ignorance, insisting that it had no duty to investigate.

Robert Maxwell’s palliative for the problems was to board the Gulfstream. On Sunday, 12 January he flew for dinner to Munich, departing early the following morning for New York to embark on a renewed effort to sell his Central European Fund on the West Coast. By the 20th his absence from London had fractured his relationship with reality. Instead of seeking solutions to MCC’s indebtedness, he flew to Bulgaria and then Croatia with Rudi Perpich, the former governor of Minnesota, to negotiate investing millions of dollars in those countries’ newspapers and television services. His hopes of profits were distant dreams. In London, the reality was increasing turmoil within the Maxwell empire caused by fears that the auditors’ finalization of BIM’s accounts might instigate a new dispute among LBI’s directors.

The trouble had started when Mark Tapley, LBI’s managing director, had returned to work on 2 January to find Larry Trachtenberg sitting in the office. ‘I don’t know what your role is in this firm,’ Tapley said angrily to the fat American, ‘but you’re meant to be out.’ Trachtenberg shrugged; despite Kevin’s promise to halt the stock lending, he had not been removed.

Unknown to Tapley, Maxwell had received a report from John Pole, the head of security, about Trachtenberg’s strange activities. During a routine search for a missing cassette tape of Trachtenberg’s telephoned market dealings, Pole discovered that the American was being threatened by a BIM employee. After some negotiations, a woman deposited the tape at the Mirror headquarters’ reception. Maxwell had clearly decided to ignore the incident, for Trachtenberg had celebrated his fortieth birthday hosting an expensive party at Mossiman’s, the Knightsbridge restaurant.

Trachtenberg was clearly secure within the Maxwell citadel. That very day, 2 January, he had typed a memorandum to the Maxwells setting out his value to them, now that it was time to calculate the 1990 bonus. Not only had he arranged transactions totalling $725 million in the previous year, but, he added in chilling prose, ‘If one were to include stock loans which were ultimately used in cash generation exercises, the total would easily surpass $1 billion.’ There it was, a stark admission of the misuse of the funds. Not surprisingly, his bald statement of facts encouraged Maxwell to increase Trachtenberg’s salary to £200,000 and to add a 10 per cent contribution towards his pension, a performance bonus of £100,000, a car and a rent-free house estimated to cost the London & Bishopsgate Group £78,000 every year.

These favours had not gone through without internal opposition. Gillie Bryson, an accountant, had noted to Kevin that Trachtenberg’s income had risen 154 per cent in two years and that he was ‘earning more than many of the top Chief Executives of the top FT-SE 100 companies’, despite the loss by London & Bishopsgate Holdings (LBH) of ‘a great deal of money’. Although Bryson complained, ‘I am at a loss to understand what possible justification there would be for any bonus to be paid,’ the Maxwells understood Trachtenberg’s value very well. Keen to capitalize on that sentiment, Trachtenberg’s latest proposal was that he exchange his shares in LBH, estimated by himself to be worth £250,000, for his house, which was valued £599,000. Although LBH was actually worthless, the Maxwells had agreed to consider his proposition.

Trachtenberg’s inviolability encouraged Tapley’s anxiety to resign, but he was persuaded by Anselmini, Willett and especially Bernard ‘Manuel’ Donoughue ‘not to rock the boat’. Pointing to the letters from lawyers and accountants approving the stock-lending scheme, Donoughue urged, ‘We’re going to arrange a buy-out of LBI so we can keep it for ourselves.’ Tapley was becalmed. By then, Trachtenberg was concealing the use of the pension fund shares while John Cowling completed BIM’s accounts.

On 5 February, Cowling asked Cook for a detailed explanation of the stock lending. He was answered with a statement of ignorance. Cook replied, ‘I don’t know much about the arrangements except that I have an agreement with LBI.’ In his files was a letter from Trachtenberg sent in early January assuring him that all BIM’s assets were safe. Attached to that letter was a note from the American acknowledging receipt at LBI of another batch of shares owned by BIM. Unknown to Cook, on that very day Trachtenberg had sent those same shares to Crédit Suisse to raise more money.

Cowling’s questions raised doubts in Cook’s mind. Three days later, on 8 February, he met Maxwell and asked for assurances about the stock lending. Since the beginning in December 1988, over £200 million of pension fund shares had been passed over on Maxwell’s orders to Trachtenberg. ‘Everything’s fine,’ said BIM’s chairman, not revealing that at 3 p.m. that day Kevin would telephone Julie Maitland to ask for a further $3 million loan guaranteed as he knew by pension fund shares.

Cook’s sanguine response to this reassurance did not immediately placate Cowling. By mid-February, the auditor had become puzzled by Trachtenberg’s vague replies, especially after he had provided two different lists of the pension fund shares held by LBI. There were other good reasons for Cowling’s unease. He had not seen any written authorization for the stock lending from BIM’s directors; and there was a letter from Mark Haas of Lehmans confirming that the pension fund’s shares handed over by Invesco were held as ‘collateral for loans in connection with the stock-lending agreement’. (Haas would subsequently claim that either Trachtenberg or Cook had composed the letter.)

In an attempt to clarify his confusion, on 13 February Cowling listened to a telephone conversation between Cook and Trachtenberg. ‘Can you put the whole position in writing because it seems you’re doing collateral swaps which aren’t authorized?’ asked Cook. Trachtenberg’s replies clearly contradicted his earlier explanations. Talking about Lehmans, he actually mentioned ‘collateral swap’, a term which should have alarmed Cowling.

Although Trachtenberg did accurately say, ‘There was no stock-lending position with Lehmans on 5 April 1990,’ he confused the auditor by saying of the later agreement, ‘The Treasury bills are held as collateral for the stock’ for BIM’s account. Subsequently Cowling received a similar assurance from Mark Haas, who stated in a letter that the BIM shares were held as collateral under the stock-lending agreement. In fact, Haas knew this was not conventional stock lending, only pure borrowing against collateral.

By then, other matters should also have aroused the auditor’s suspicions: Maxwell had ‘invested’ £5 million of BIM’s money in the Robert Fraser Group, the private bank chaired by Lord Rippon; BIM had ‘deposited’ £69.7 million in cash with LBI; a Maxwell private company had ‘borrowed’ £37.6 million cash from the pension funds; and BIM’s stake in MCC had doubled from 13 to 25 million shares.

There was one simple chore which Cowling should have undertaken to complete his audit. The original certificates for all the shares managed by BIM ought to have been seen and ticked off the inventory. Cowling’s problem was that the certificates were scattered in more than one dozen places and in several countries. Instead of demanding sight of each certificate from Trachtenberg, he was content to be shown photocopies or to listen to the American’s oral explanation that the missing certificates would be produced in the future. ‘Don’t worry, it’s all part of the normal stock-lending arrangements,’ gabbled Trachtenberg, and the auditor was persuaded.

To prove the point, Cowling was shown certificates for 1 million shares in Banco Commercial Portugues. Although owned by BIM, Maxwell had already pledged the shares against a loan. Among other certificates promised was one for 12 million MCC shares ‘lent’ by BIM to LBI. Trachtenberg had pledged those shares with Goldman Sachs and, to cover that discrepancy, he offered a polite letter to Cowling simply stating that LBI ‘held’ the share certificate.

Cowling would return to Cook towards the middle of February: ‘I’ve received all the information I need from LBI. Everything’s fine.’ Since Cook was not an accountant but an administrator, he gladly accepted Cowling’s assurances. ‘It’s miraculous,’ thought Highfield. ‘They say there’s no problem any more.’ He reasoned that after all LBI was staffed by men – Tapley, Donoughue, Ford, Carson and Trachtenberg – of higher qualifications than himself.

Cowling’s only caveat was that he would send a letter to BIM listing the serious problems to be solved. There were, he would write, ‘control deficiencies and weaknesses’ in BIM and confusion because share certificates were kept in Various locations’. He noted a catalogue of errors in BIM’s accounting system and stated that ‘LBI’s systems had collapsed.’ His conclusion was that there was need for a substantive review, ‘due to lack of basic controls’. But he did certify that the pension funds possessed £792 million, adding that the interest earned from lending money to Maxwell was £0.5 million and that ‘this should please the pension fund’. The audit was completed. Maxwell’s special arrangements remained concealed.

Robert Maxwell greeted the news of Cowling’s self-deception by immersing himself among the famous and rich to discuss the world’s problems. Constant travel was not only a distraction from what he still believed were temporary difficulties but immunized him from reality. He flew to Davos in Switzerland to address the World Economic Leaders. After a dinner at the Fluela Hotel, where he reassured the chairman of Crédit Suisse of his empire’s well-being, he basked in the limelight of constant receptions and meals, happily anticipating his own lecture on ‘Acquiring Media in Eastern Europe’. Naturally, when he delivered the lecture, Maxwell did not confess that his own efforts in Berlin, Sofia, Prague, Zagreb and Moscow were proving expensively unprofitable. Instead he boasted about his close relationships with presidents and ministers across the continent, especially with Mikhail Gorbachev. That relationship, cemented in Minneapolis, Minnesota in June 1990 during their joint consecration of the $100 million Gorbachev Maxwell Institute, had propelled Maxwell’s self-esteem to new heights. Although he had unfortunately forgotten to contribute his promised $50 million towards the institute, founded with the lofty intention of uniting the world’s scientists, the pictures and soundbites of Gorbachev praising Maxwell and warmly shaking his hand had been profitably flashed by satellite around the globe.

That impression of influence was the reason for the request by Yitzhak Shamir, Israel’s prime minister, for Maxwell to visit Jerusalem on 12 February. Shamir needed Maxwell’s help in passing a message to Gorbachev about the danger posed by Iraq should the war with Kuwait spread to Israel. The proximity to power and his importance in Israel, where every minister made himself available, gave Maxwell special pleasure. At the end of twenty-four hours of meetings in Jerusalem he flew on to Zagreb to meet Rudi Perpich, in order to finalize preparations for Maxwell’s hoped-for television and newspaper empire in Croatia. Perpich, hired as Croatia’s lobbyist after his defeat in the Minnesota elections, knew how to impress Maxwell. Lunch had been arranged with President Tudjman to celebrate the signing of letters of intent, an encounter which took place on former President Tito’s Mediterranean island, in the breathtaking villa compound. Perpich watched Maxwell’s spirits rise as he savoured the treatment normally accorded to heads of state. By the second day, Perpich was impressed to find that the visitor had, within his first twenty-four hours on the island, learnt sufficient Croatian to speak with the president without an interpreter. On their return flight to London, for Perpich’s benefit Maxwell reflected at length upon his own glory, ignoring the cost of flying 6,000 miles to earn nothing. At £3,500 per hour, the Gulfstream’s journey cost over £90,000 – £50,000 for the flight plus £42,815 for insurance in a war zone.

Maxwell’s distance from reality struck Rupert Murdoch, who had at last fulfilled a long-standing and much postponed visit on 11 February. ‘We are two big publishers,’ Maxwell had boomed on the telephone, ‘and we should talk.’ Murdoch’s secretary had taken the precaution of warning Maxwell that her employer could not be kept waiting and that he had precisely forty minutes before the next appointment. Their recent but rare encounters, thought Murdoch as he ascended to the ninth floor of Maxwell House, had invariably been characterized by Maxwell’s bombast and Murdoch’s teasing response. Ever since he had outwitted Maxwell in 1969 to win the News of the World, Murdoch’s capacity to irritate him had grown.

At ten minutes past four, five minutes into their meeting, Murdoch’s impatience with Maxwell was turning into contempt. With few pauses for breath, Maxwell was boasting about his worldwide diplomacy, especially his intimate relations with the Kremlin and with the leaders of Israel. His self-indulgence had bemused and then silenced his visitor. At the end of forty minutes, Murdoch asked: is there anything else we need to talk about?’

‘No,’ replied Maxwell with a satisfied grin. In his opinion, he had proved his importance to his rival.

As Murdoch descended to the street, he exclaimed, ‘What was all that about? He’s ludicrous.’

Even for Maxwell, the glow was brief. Five days later, at seven o’clock on the morning of 16 February, he was once more sitting in his kitchen, switching television channels while George Wheeler applied L’Oréal to his hair. The Gulf war, one month after the first Allied attacks, dominated the airwaves, especially on Murdoch’s Sky channel. Once again, Maxwell was morose. The previous evening, after landing by helicopter on the roof, he had deliberately stayed away from the cocktail party to mark Richard Baker’s retirement as managing director of MCC: disloyalty was unforgivable. He would also ignore the invitation to Andrew Lloyd Webber’s Berkshire estate that evening to celebrate the composer’s wedding. He struck that idea out of his mind. Betty could go alone. Maxwell’s thoughts were on his journey the following day to Istanbul to meet the president of Turkey. The $40,000 flight would allow him to speak to the president about the country’s participation in the Gulf war for one hour before returning home for dinner with President Zhelev of Bulgaria.

Maxwell’s interest in Bulgaria, that irrelevant and impoverished Balkan people’s republic, was irrational. Although he confided to Sir John Morgan, a former British ambassador who had joined his staff, that he felt sentimental about the country which had helped him during his escape from the Nazis in 1940, his investments in a school for business management, a newspaper, a television station, a hotel chain and a bank were costing millions without any chance of profits. Ognian Doynov, his Bulgarian adviser and a disgraced former member of the Politburo who had replaced Morgan, appeared to some to be encouraging Maxwell’s waste of money. Paid £110,000 annually plus a motor car and free company flat, Doynov could not, however, be blamed for Maxwell’s waning interest in his expensive fantasy. ‘The Bulgarians’, noted Brian Cole, Maxwell’s fixer in that country, ‘did not trust Maxwell. They just wanted his money.’ Among those travelling to Sofia as part of the team to invest MCC’s money was Helen Liddell, a future Labour member of parliament, employed as director of personnel and public affairs at the Scottish Daily Record, part of Mirror Group Newspapers. Maxwell, with Liddell in attendance, paid out millions but received little more than a royal welcome in return.

Maxwell’s reveries about international stardom were disturbed by Kevin, who was about to fly with Anselmini to Zurich on a mission to reassure the bankers that new anxieties about the empire were groundless. Kevin’s solution was radical. More of the empire needed to be sold, he urged, despite the poor prices they might earn. The recent sale of their shares in TFI, the French television station, had prompted, a temporary rise in MCC’s share price – the market had not realized that some of the shares were in fact owned by the Maxwell pension funds. More sales were needed. His father agreed and added another ploy: ‘We’ll have to buy more shares.’ By 19 February, Maxwell officially owned 68.1 per cent of MCC, an increase of about 5 per cent over three months. A genuine market for the shares had practically ceased to exist.

Among those scenting a profit from the dismantlement of the empire was Robert Pirie, the Rothschild Inc. banker blamed by many for his part in the crisis after he had advised on the $2.6 billion purchase of Macmillan. Although Maxwell had insisted in the glory hours of winning the battle that he would never sell any Macmillan asset, the American publisher’s break-up was inevitable. He had begun selling Macmillan assets in December 1989, although the $131 million he received in a public offering for 44 per cent of Berlitz had been a disappointment. This remedy in any case bore a sting: each sale after the Berlitz disposal would attract tax, reducing the proceeds.

On a recent Saturday morning, Pirie had drunk coffee with Maxwell in London. ‘A client wants to buy Pergamon Press,’ he smiled, asking the Publisher whether he would sell.

‘Yes,’ said Maxwell, agreeing that Rothschilds could investigate Pergamon’s accounts on behalf of their client. But before the bank completed their investigation Maxwell told the banker that he was out of the running. The sale of Maxwell’s jewel, the foundation of his fortune, was already under way – codenamed ‘Project Tokyo’ – convincing the dispirited founder of the empire that it was time to contemplate retirement. The purchaser was Elsevier, a Dutch competitor of Pergamon.

The arguments seemed incontrovertible. MCC was suffering from the ‘Max Factor’: his own presence was devaluing his company’s value. Recent resignations had compounded his troubles, and window-dressing was no longer a sufficient cure. Only his retirement would improve the image and the share price.

Kevin’s proposed successor as MCC chairman was Peter Walker, the Conservative member of parliament and former cabinet minister who had earned his millions in the 1960s with Jim Slater. Their controversial partnership had introduced a new era of unit trust investments in Britain, only to culminate in disaster and scandal long after Walker had departed. Walker, however, had secured his fortune and went on to become a successful politician.

The idea of recruiting Walker had first been mooted by Sir Michael Richardson, MCC’s new stockbroker and the chairman of Smith New Court, which also employed Walker. Richardson, who had willingly accepted MCC as a new client after Maxwell had dismissed Laing & Cruickshank for failing to puff his shares, had first dealt with Maxwell twenty-five years before, when he had floated Pergamon shares on the stock exchange. In the decade after the Pergamon scandal in 1969, he had enjoyed only occasional contact with his erstwhile client, but that changed during the 1980s with Maxwell’s resurrection. During those boom years Richardson had established himself in the City’s higher echelons, reputedly becoming close to Margaret Thatcher, and switching to N.M. Rothschild, the bankers, where he earned a fortune. Like so many in the Square Mile, he wanted to believe, when MCC became a client in 1989, that Maxwell was ‘squeaky-clean’. Sensitive, obliging and knighted for his polished performance in the City, Richardson would plead gullibility in the face of Maxwell’s self-salesmanship, coupled with his promise of enormous fees. In recognition of that special relationship, Richardson had given the speech of thanks in 1988 at Maxwell’s grandiose sixty-fifth birthday party for 500 of the great and the good in Oxford – it was ‘the party of the decade’, Richardson had declared extravagantly, before claiming that their relationship with Bob had ‘enriched’ all his guests’ lives.

Peter Walker’s introduction to the Maxwells was undertaken by Richardson, whose admiration for the politician, as for Maxwell, was unconditional: ‘He’s as tough as they come.’ The result had been an invitation for Kevin to dine, on 21 November 1990, at Walker’s home in Cowley Street, Westminster. That evening, Kevin had propositioned the politician to become MCC’s chairman. The notion appealed to Kevin because, as he observed his father’s increasingly erratic performance, he had, with his mother’s encouragement, developed the desire to run the whole show himself. Walker was seriously interested. The two men had found they had enough in common: lean, mean, ambitious, self-admiring and brutally self-interested.

Three months later, at nine o’clock on 12 February 1991, Richardson and Walker visited Robert Maxwell to discuss the terms for what Sir Michael called ‘an ideal solution’. The outline was blessed by Maxwell and, over lunch two days later, Kevin and Walker settled more details. To Kevin, one of the empire’s problems seemed to have been resolved. Walker would be paid £100,000 per year and would, in addition, benefit from the executives’ ‘incentive’ scheme. He was promised, over the following three years, 605,380 MCC shares in three instalments, and he would receive them free. At that date the shares were worth £1,350,000.

Kevin’s thirty-second birthday fell on 20 February. As a treat, he chartered a Falcon jet and invited three other couples to fly at 7.30 in the morning from Heathrow to Venice for lunch, staying overnight at the Pensione Accademia. The cost could be charged to the company because he would briefly attend a board meeting of Panini, a sticker manufacturer which his father had bought in an expansionary fit and which was losing money.

While his son took a break, Robert Maxwell flew to the American southern states, to relaunch his Central European Fund. Within two days he had tired of the seven-day programme, which was costing £140,000 and flew instead to Miami to inspect the Lady Ghislaine after her repairs. Once there, he decided that the new captain was unsuitable. Summoned to the bridge, the American seafarer was fired for dereliction of duty: he and the first officer had been absent from the boat shortly after Maxwell arrived.

Adding to the army of those dismissed caused Maxwell no concern. Once he had tired of people, their departure was convenient. No one, he believed, other than himself, was entitled to any security of employment, an opinion which he probably did not discuss over lunch with Norman Lamont at 11 Downing Street on 27 February – a meeting which the new chancellor of the exchequer could not subsequently find in his diary.