The Return of the Ruined Chaebol's Third-Generation Heir - Chapter 62

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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 Third Generation — Episode 62
Morning of March 17th, 2008.
As I stepped into the office, the TV screen caught my eye. Han Jae-yi was sitting on the sofa, watching the news.
[Breaking News — JPMorgan to Acquire Bear Stearns at $2 Per Share]
A news ticker scrolled across the bottom of the screen.
Two dollars. Friday’s closing price had been thirty. A year ago, it was one hundred seventy.
A company worth all that had become worth a mere two dollars.
The news shifted to footage of the Bear Stearns Headquarters lobby.
Employees carrying cardboard boxes were leaving the building. Heads bowed, dodging the cameras.
A female employee sat collapsed in the middle of the lobby, crying. A colleague beside her had wrapped an arm around her shoulders, but the tears didn’t stop.
“……I read the articles all last night.”
Han Jae-yi spoke without taking her eyes from the screen.
“I heard hundreds of JPMorgan’s due diligence team came into Bear Stearns Headquarters Saturday morning. Like an occupying army.”
I removed my coat and sat down beside her.
“Bear Stearns employees came in even though it was the weekend, serving coffee to rival bank employees rummaging through their desks and handing over secret ledgers. When JPMorgan people saw the books, they shouted, ‘This is worth zero.'”
Han Jae-yi’s voice was calm, but tinged with bitterness.
“On Sunday, JPMorgan said they wouldn’t take thirty billion dollars’ worth of bad assets, so the Fed created a special-purpose entity to take that garbage instead. They call it Maiden Lane.”
“And the price they offered was two dollars.”
Han Jae-yi nodded at my words. A lot had happened in just two weekend days.
Bear Stearns, which had seemed like it would survive thanks to Friday’s intervention by JPMorgan and the Federal Reserve of New York, instead had that lifeline become poison—stock prices plummeting and a bank run as customers rushed to withdraw their money, leading to bankruptcy.
“Book value was over eighty dollars. I heard the Bear Stearns Board of Directors was up in arms saying this was robbery, that they should just go bankrupt.”
“But they accepted it.”
“The Federal Reserve president called and said if it wasn’t done today, the Fed window would close tomorrow and you’d all be wiped out. The CEO signed at midnight.”
JPMorgan and the Federal Reserve of New York, who had seemed to be keeping Bear Stearns alive with emergency funding.
In just two days, they became an occupying force, seizing the company at a bargain price.
An investment bank with eighty-five years of history collapsed in two days.
It was all because Bear Stearns had no power.
Of course, their failed investments seemed like just deserts. The end of greed always looked like this.
Han Jae-yi pointed at the TV.
Employees still carrying boxes continued to stream out of the building.
“Those people were Wall Street elites a year ago. People earning six-figure salaries lost their entire fortunes overnight. A lot of them received bonuses in stock.”
I watched the screen without speaking.
Their misfortune was our profit.
Ring—
The hotline for Danny rang.
“Danny.”
-You see it?
His voice was excited.
“I’m watching it now.”
-Bear Stearns CDS is up over 900% from our entry price. Fifteen million dollars in, one hundred thirty-five million out.
That was over thirteen billion won.
A Credit Default Swap was a kind of insurance against a company’s bankruptcy. Naturally it traded like a financial product, and since no one in the market wanted to issue CDS right now, prices were skyrocketing.
-You think we can hold longer? At two dollars a share, it’s basically bankrupt. CDS could go even higher.
“No. Let’s liquidate now.”
-……Now?
Silence came through the receiver for a moment.
I understood why Danny wanted to hold longer.
At two dollars a share, it was essentially bankrupt, and CDS prices could rise further—that was his thinking.
But I knew.
A week from now, due to shareholder resistance, the acquisition price would be renegotiated to ten dollars a share.
When two dollars becomes ten, the market will interpret Bear Stearns as having survived.
Then CDS prices will fall.
This was the peak.
“Yes. I believe now is the time to sell. I’d like to lock in the profits. The gains afterward won’t be much bigger anyway. Wouldn’t it be reasonable to see this as the high point?”
-……Fine. If that’s what CEO Kang chooses, I’ll follow. So what’s next?
“I’ll split all these profits between Lehman Brothers CDS and put options.”
-You’re taking money out of Bear Stearns and putting it into Lehman?
“Yes. All of it.”
-……You’re genuinely insane. In a good way. I’ve never seen a gambler with this kind of conviction before.
There was profanity in Danny’s voice, but also trust.
“However, I won’t make additional purchases of Lehman right now. I’ll give you a signal. Invest at that time.”
-Got it. Liquidate Bear Stearns fully, and when CEO Kang gives the signal, buy more Lehman. What about Merrill Lynch and AIG?
“Hold those.”
-Okay.
“Take care then.”
I hung up and turned to find Han Jae-yi watching me.
“How much?”
“One hundred thirty-five million dollars.”
Han Jae-yi’s eyes widened.
“……Thirteen billion? How much did we put in?”
“Fifteen million dollars.”
Han Jae-yi said nothing for a long time.
Her gaze returned to the TV.
Bear Stearns employees continued streaming out of the building on screen.
“……It feels strange.”
Han Jae-yi murmured.
“The money we made is the money they lost.”
“Yes.”
I didn’t deny it.
“But if we didn’t make it, someone else would have. That’s how the market works. However—”
I looked at Han Jae-yi.
“Someday this feeling will grow numb. When it does, I want you to remember how you feel right now.”
Her conflicted expression now was better than celebrating. Once you chase only money, eventually your hands reach for things they shouldn’t.
Han Jae-yi nodded, but her expression remained complex.
“So what’s next?”
I paused before speaking.
“Lehman.”
“Lehman Brothers? The one you kept shouting about from the start?”
“Yes. And it’s going to be much bigger than Bear Stearns. They’re holding far more subprime mortgage-related products.”
The news anchor on screen was speaking.
[The market is showing relief that the worst has passed with the Bear Stearns acquisition.]
“Relief, they say.”
Han Jae-yi smiled bitterly.
“Will people still be saying things like that after what you predicted comes true?”
I sat down at the terminal instead of answering.
I pulled up the Lehman Brothers CDS Spread. The market was finding stability, just as the anchor said.
“They’ll say the exact same thing then too. People’s nature is to avoid and ignore the truly terrifying reality.”

* * *
At the same time, in New York.
Danny Kim sat in a lounge in Manhattan.
It was a place Wall Street people frequented. You had to show your face at gatherings like this if you wanted to stay informed.
“Supposedly someone made tens of millions shorting Bear Stearns.”
“Really? Who?”
“Don’t know. But the timing was incredible. They bought a ton of CDS right before Friday.”
The conversation came from the next table.
Danny laughed inwardly.
Just tens of millions.
The position I’d just closed was one hundred thirty-five million dollars.
Of course I had no intention of saying it out loud.
“Danny?”
A familiar voice called out.
I turned to see a familiar face. Mark Chen. A former colleague from my previous company.
He was the one who’d called it crazy when I left that job.
“Long time. Sit.”
I gestured and Mark sat across from me.
His expression was dark. The self-assured manner he’d had before was completely gone.
“How’ve you been?”
“……So-so.”
Mark’s answer was brief.
We made small talk. The Bear Stearns crisis, market sentiment, the Fed’s moves.
But Mark’s expression remained stiff. He looked like he had something he wanted to say.
“You got something on your mind?”
I asked first.
Mark hesitated for a moment before speaking.
“Did you really make a lot of money?”
“What?”
“Dustin at Goldman Sachs said you made serious money this time catching the Bear Stearns CDS.”
Word was getting out.
I said nothing.
Not that I didn’t want to talk. I wanted to say: You were all wrong, and I was right. All of you who mocked me back then were wrong.
That one line would’ve been enough, but the face of a young CEO in Seoul came to mind.
Kang Seon-woo.
He was being thoroughly secretive about his existence. I’d never heard him say it directly, but I had a sense of it anyway.
It seemed there was a reason he couldn’t be exposed.
I shrugged.
“Dunno.”
“Hey, I’m sorry. Really.”
Mark lowered his head.
“About how I disrespected you before—I never thought something like this would happen.”
I didn’t answer. Mark continued speaking.
“Honestly, I took some serious losses on this. The firm’s saying if I can’t recover, I’m out…….”
Mark’s voice became quieter.
“Could you give me some information? How’d you do it?”
“Information?”
“Yeah, you called the Bear Stearns collapse right. You must know something, right?”
I felt a quiet laugh welling up inside.
They were so far off. Rather than acknowledge his own competence, he’d rather believe there was some secret information. That’s all Wall Street elites amounted to in the end.
But I suppressed my smile and sized Mark up.
“If the information coming from your firm is decent, maybe.”
Mark pondered for a moment, then nodded.
And he lowered his voice.
“The Fed saved Bear Stearns this time, but there won’t be a next time. That’s the consensus inside.”
I was inwardly surprised.
He definitely had connections inside the Fed, being at a big firm like that. Once you got a name on Wall Street, moving into the Fed or federal government was a natural career path.
“I already knew that.”
Of course, I didn’t know everything the Fed was thinking.
But my young CEO already knew that stance long before Bear Stearns even collapsed.
The more I thought about it, the more remarkable he seemed.
Just a college student, yet his caliber was different.
At my reaction, Mark hesitated a moment, looking flustered, before speaking again.
“……Next could be IndyMac or Freddie Mac. There’s internal information that loan recovery rates are dropping every single day.”
IndyMac and Freddie Mac.
Neither was an investment bank. They were residential mortgage lenders.
This was fresh intelligence. If those two collapsed, it meant the subprime crisis was deepening.
I stood up from my seat.
I needed to get this information to Seoul quickly.
“That’s good information.”
“So what’s your information……?”
“AIG.”
“AIG?”
“Look carefully at the amount of CDS AIG has issued to the market. If this crisis continues, will they even have the money to pay out the insurance?”
I said that and left the lounge.
Mark sat there, mulling over what I’d said, then seemed to grasp a hint, and quickly grabbed his jacket to follow me out.

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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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