The Return of the Ruined Chaebol's Third-Generation Heir - Chapter 60

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This chapter was translated by Lunox Novels. To support us and help keep this series going, visit our website: LunoxScans.com
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The Regression of a Fallen Chaebol’s Third Generation – Episode 60
“Oh, perfect timing. I’ll hand you over to him.”
September 2007.
After finishing my schedule in the United States, Han Jae-yi and I had returned to South Korea and were living hectic lives.
I attended classes in the mornings and afternoons after re-enrolling, and commuted to the office once the United States markets opened.
Han Jae-yi was in her final semester, so she essentially lived at the office.
“Danny, take this call.”
The moment I walked into the office, Han Jae-yi handed me the phone.
In the future I came from, video conferences were held frequently and messengers were advanced, making it easy to communicate with people in other countries. But this era was different.
Just two months ago, the world’s first smartphone had launched, and there was barely any messenger to speak of.
International calls were the only way to reach Danny in the United States.
“Danny.”
-Your voice sounds absolutely exhausted.
Danny Kim’s voice came through the receiver with amusement at my current state.
-When you were sitting across from me in the United States, you were unmistakably a market player, but now that you’ve set foot in South Korea, you’re a college student.
Hearing Danny’s words, I realized that to someone unfamiliar with the situation, my circumstances might seem absurd.
At first, I hadn’t adapted well to this dual life either.
But after returning and spending years here, it had become entirely natural.
-Anyway, I didn’t call to amuse you. I found a counterparty.
Danny had been searching in the United States for a financial firm that would sell us Credit Default Swaps on Bear Stearns, Lehman, and others.
“Which one?”
-Goldman Sachs.
That was fortunate.
So many investment banks were filing for bankruptcy during this period that if we’d bought from a second-rate firm, we might not have been guaranteed the payout and could have lost everything.
With Goldman Sachs, the world’s largest investment bank and a place that survives even in the future I came from, we were safe.
“You’ve done excellent work. Acquiring Bear Stearns CDS must have been difficult.”
-Actually, it was easy.
“Easy?”
Just a short while ago, France’s largest bank had frozen redemptions on three of its subsidiary funds.
In Britain, a mortgage-specialized bank faced a liquidity crisis and suffered a bank run.
And yet it was easy?
-The ECB and the Federal Reserve released emergency liquidity. On top of that, they cut rates by 50 basis points the day before yesterday. Right now, the market and Wall Street believe that the government will step in and save Bear Stearns.
Once the United States cut its benchmark rate by 50 basis points for the first time in four years, the stock market began soaring wildly. Not only did it break through previous highs, but massive amounts of capital were pouring into the markets.
-The person at Goldman Sachs who took our position was a former colleague of mine, and he actually tried to talk me out of it. What are you going to do? Keep going?
The moral hazard among financial professionals during this period exceeded what I’d read in books and imagined. Driven by the belief that the government would save them, they were doing whatever it took to make money right now.
“Yes. Our plan hasn’t changed. We’re sticking with it.”
-Good. Then approve the funds in Ribbon Capital. Buy the CDS, and distribute the rest to Put Options.
“Understood. Thank you for your hard work, Danny.”
After hanging up, I looked at Han Jae-yi.
“How’s the market situation?”
“It hit a new high. At this point, I don’t even know what’s right anymore.”
Han Jae-yi frowned as she spoke.
“The market has been getting bad news every day, right? We keep hearing that small and mid-sized banks don’t have funds, but the stock market reaches new highs every single day.”
“It’ll keep going up through next month. So don’t get too absorbed in the market. Just look for data that supports our investment.”
“Understood.”
“Oh, and Danny Kim will be sending account information. He says he found a counterparty. Please approve the funds.”
Han Jae-yi nodded, and I took my seat.
Han Jae-yi looked worried, but I was actually pleased that the market was rising.
The more everyone was intoxicated with optimism, the cheaper the CDS premiums became, and the more we could buy.
‘When those laughing now start crying, we’ll be the ones laughing.’

* * *
October 24, 2007. New York Manhattan. Hundreds of investors and analysts had gathered in the Merrill Lynch Headquarters Auditorium. It was their quarterly third-quarter earnings presentation, but today the atmosphere was unusually charged with anticipation.
“I got chills when the Dow broke through 14,000.”
“The S&P is at an all-time high too. The Federal Reserve cutting rates was a masterstroke.”
“So Goldilocks was real. Not overheating, not recession—just the right temperature.”
Optimistic conversations echoed throughout the auditorium.
The Dow Jones Industrial Average had set a new all-time record of 14,164 points, and the S&P 500 had also reached its peak.
The Federal Reserve was actively intervening, offsetting the shock of the housing market collapse.
The market was still Goldilocks. Everyone believed that.
“Looks like they’re about to start.”
The crowd’s attention turned toward the center of the stage.
The lights dimmed, and the Merrill Lynch logo appeared on screen.
The expectations of those gathered were simple, really.
The benchmark rate had fallen, indices were at all-time highs. Naturally, the investment bank’s profits must be astronomical.
Merrill Lynch was one of the world’s largest securities firms, and there was no way they hadn’t made money in this market environment.
A man stepped onto the stage. Gray-haired with deep wrinkles etched into his face—the CEO of Merrill Lynch.
“Good evening. I’m Mark Lennon, Chairman and CEO of Merrill Lynch. I’m pleased to present our third-quarter earnings today.”
With a formal greeting, the earnings presentation began.
Numbers appeared on the screen one by one.
“First, our third-quarter revenue.”
As the numbers were revealed, gasps of amazement rang out throughout the auditorium.
The revenue far exceeded market expectations.
A 15% increase from the same quarter last year.
Even those who believed in the Goldilocks scenario hadn’t expected it to be this good.
“Just like Merrill Lynch.”
“At this revenue level, net income must be over two billion dollars.”
“Isn’t it three billion? With revenue like that.”
Investors began keying numbers into calculators, their hopes rising.
With revenue at that level, net income would obviously be staggering.
Then.
The CEO’s expression stiffened almost imperceptibly.
Before moving to the next slide, he seemed to pause and collect himself.
“Next is…… third-quarter net income.”
The slide changed.
Numbers appeared.
Net loss of $2.24 billion (approximately 2.08 trillion Korean won)
The auditorium froze instantly. A loss? The revenue was that strong and there’s a loss? Murmurs began to spread.
The CEO continued in a measured tone.
“The primary cause of the loss is the write-down of subprime mortgage-related assets. We had initially anticipated write-downs of 4.5 billion dollars (approximately 4.18 trillion Korean won), but…”
His voice paused briefly.
“The actual write-down reached 8.4 billion dollars (approximately 7.81 trillion Korean won).”
8.4 billion dollars.
Nearly double the anticipated figure.
The air in the auditorium froze solid.
“Moreover, there is a possibility that write-down amounts will increase further in the next quarter.”
Increase further?
When it’s already 8.4 billion dollars?
The investors’ faces turned ashen.
Some pulled out their phones and began frantically texting.
The CEO paused and looked out across the auditorium.
Then he slowly opened his mouth.
“And…… there is one more thing I must tell you.”
The auditorium fell silent.
All eyes were fixed on him.
“Taking responsibility for this situation, I will resign from my position as Chairman and CEO of Merrill Lynch effective today.”
For a moment, time seemed to stop.
“Resign?”
“The CEO is resigning?”
Mark Lennon was a legendary figure who had built Merrill Lynch to its current scale. That he would resign?
Before the shock could even settle, a man in the front row suddenly stood up.
Without a word, he walked swiftly toward the exit. The man sitting next to him caught on and rose as well, then one, two, and more people began bolting from their seats. Each desperate to sell their stock before anyone else. If you hesitated even one second, you’d be caught holding the bag.
“Move. Quickly. Let’s go.”
The exit was crowded with people jamming through.
People pushing one another, trying to get out first.
The auditorium descended into chaos. The CEO watched the scene unfold from the stage. His face was entirely expressionless.

* * *
“The Dow went up again today.”
“How much?”
“It broke 14,100. Another all-time high.”
It was an ordinary night.
Han Jae-yi and I were discussing the market in the office. The United States market was in full swing.
It was our busiest trading hours.
“The S&P 500 is around 1,550. It’s been rising continuously since the Federal Reserve cut rates.”
Recently, the stock market had known no pause, climbing relentlessly. It was thanks to the Federal Reserve’s aggressive moves.
“By the way, I saw that European banks had their credit ratings downgraded again yesterday. UBS and Deutsche Bank. By Moody’s.”
“Yet the market still goes up.”
“Yeah. Bad news comes out and by afternoon it’s shaken off and we’re back up. It really feels like true Goldilocks.”
There was an odd emotion in Han Jae-yi’s voice.
“We’ve had CDS positions for over a month now. Do you know how much the Dow has risen in that time?”
“I do.”
“500 points. 500 points. While we’re paying CDS premiums, the market keeps climbing.”
Han Jae-yi let out a sigh.
“I believe in you—that is, I believe Seon-woo’s judgment isn’t wrong—but I can’t make sense of this market with a straight head lately.”
“That’s natural. The market is rising. And I’d be lying if I said I wasn’t feeling anxious too.”
I understood what Han Jae-yi was feeling.
We were betting on a crash, but the market was setting new highs every day.
Fear of Missing Out.
That nagging worry—shouldn’t we be riding that momentum instead?
That’s what was shaking Han Jae-yi. For the past few days, I too couldn’t shake the anxiety that maybe the future had changed here.
“Just wait a little longer. It’ll come soon.”
Whenever those thoughts crept in, I reassured myself as much as I reassured Han Jae-yi.
“……Okay.”
Han Jae-yi nodded and turned her eyes back to the screen.
Just then.
Ring-ring-ring—
The office phone rang.
A call coming to the office at this hour meant only one thing.
It was likely Danny calling from the United States, so I stood up and answered.
“Hello.”
-Kang, it’s Danny. Have you checked the market situation?
His voice was urgent.
It wasn’t his usual relaxed tone.
“The market situation?”
-Yeah. The market is collapsing right now. The stock market.
Collapsing?
Just moments ago, Han Jae-yi had said the market hit a new high?
I put down the phone and moved toward Han Jae-yi’s desk. Next to her workstation was a Bloomberg Terminal. The black screen was filled with rows of green and red numbers.
When I checked the Dow Jones index, the numbers that had been climbing above 14,000 just that morning were now plummeting sharply.
The green numbers were turning red.
“What is this……”
I searched the terminal for breaking news.
Headlines appeared immediately.
[Merrill Lynch Reports Q3 Loss of $2.24 Billion]
[Subprime-Related Asset Write-downs of $8.4 Billion…… Double Expectations]
[Merrill Lynch CEO Resigns Abruptly]
Now I understood. Merrill Lynch—one of the four firms we’d bought CDS on and bet would go bankrupt.
“What happened?”
Han Jae-yi approached.
Sensing something in my expression, tension settled over her face.
“Merrill Lynch released their third-quarter earnings. A $2.24 billion loss.”
“$2.24 billion?”
“Subprime asset write-downs of $8.4 billion. Double what was expected. The CEO resigned too.”
Han Jae-yi’s eyes widened.
Just moments ago, she’d been saying the market was rising, wondering if we were wrong.
She too understood what this meant.
“So we……”
“Yes.”
I nodded.
“It’s here. Now it starts.”
Han Jae-yi watched the terminal in silence. The red numbers kept falling.
At last, the moment we had been waiting for had come.
Goldilocks from the fairy tale had fled, and the three bears who had left their home returned.
And now, someone would have to pay for the porridge that had been eaten in secret.

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This chapter was translated by Lunox Novels. To support us and help keep this series going, visit our website: LunoxScans.com
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