novelnext Chapter 811: Huge Losses
Chapter 811: Huge Losses
While Huang Xiaochuan was dealing with family matters, Zhang Sui and her team were on a plane to London.
Dark Night Capital, an unassuming hedge fund established in the Cayman Islands before 2004, came in handy this time. There are many similar offshore funds and companies like Everbright Capital, which are ready to be used whenever needed.
The sole purpose of this newly activated hedge fund is to execute Huang Xiaochuan's strategy of shorting the US real estate and financial markets.
The hedge fund called "Dark Night Capital" is ostensibly managed by a clean-background, highly capable fund manager named Michael Polley, who was selected by Zhang Sui from among hundreds of fund managers.
Throughout 2006, while the world was still going crazy for US real estate and financial stocks, "Dark Night Capital" quietly began its nighttime advance.
Under Zhang Sui's direction, the fund began to quietly and gradually build up a large number of short positions.
The objective was very clear: to short the players who were having the most fun in the subprime market. The stocks of financial institutions such as Bear Stearns, Lehman Brothers, and Merrill Lynch were still setting new records. Shorting them at this time would consume a huge amount of capital, and in the eyes of the world, this approach was like the medieval "Don Quixote," with the ending seemingly already determined.
Accompanying Zhang Sui to London was a capable team who would contact the capital investment department of Barclays, the UK's largest investment bank, with the aim of purchasing CDs from Barclays Capital Investment Department.
CDS is the abbreviation for Credit Default Swap.
A credit default swap, simply put, is an insurance contract for a financial asset.
Simply put, Dark Night Capital holds a large number of AAA-rated subprime mortgage bonds that the market considers absolutely safe. However, it is worried that the issuers of these subprime mortgage bonds, such as Lehman Brothers, Bear Stearns, and Merrill Lynch, might default. Therefore, as a precaution, it specifically purchased an insurance premium from investment banks that provide CDS services.
Once the seller of CDs receives premiums from Dark Night Capital, it must promise to compensate the buyer of the CDs, namely Dark Night Capital, in the event of the issuer's bankruptcy and debt default.
To be more specific, Dark Night Capital bought Merrill Lynch's AAA-rated subprime bonds, but worried that Merrill Lynch might default or go bankrupt, so it signed a CDS contract with Barclays. According to the agreement, it would pay Barclays a large premium regularly. If Merrill Lynch really defaulted or went bankrupt, then Barclays would have to compensate Zhang Sui for her losses according to the contract. If nothing happened, then Barclays would make a profit.
From the perspective of Barclays Capital, this "Dark Night Capital" from the United States, Polly, is a complete fool. AAA-rated subprime mortgage bonds are currently the hottest financial derivatives in the financial market, and he actually dared to use them to sign CDS contracts. Isn't he just rushing to give Barclays money?
Moreover, how could top international investment banks like Merrill Lynch and Lehman Brothers possibly go bankrupt?
So after two days of negotiation and the legal team's review of the contract, Michael Polley quickly signed a CDS contract with Barclays, along with a confidentiality agreement with strict penalties for breach of contract.
While signing and exchanging documents, both sides wore smiles, but inwardly they were both cursing the other as a "fool." !
After the contract was signed, the group immediately returned to New York. On the plane, Zhang Sui used a satellite encrypted phone to make a call to her boss!
"Boss! We've built up enough positions, but that's also resulted in significant paper losses, so the pressure is still quite high."
Because Zhang Sui's operations went against the market trend, it naturally resulted in huge losses. She received a lot of margin calls every day, and she was under a lot of pressure watching the numbers on her account rapidly decrease.
"Got it!" Huang Xiaochuan replied with just those three words before hanging up the phone.
As the executor, Zhang Sui endured immense financial and psychological pressure day after day, which Huang Xiaochuan understood. He believed that no one else could have done a better job than Zhang Sui.
Only Huang Xiaochuan knew that after these few months, the dawn would soon arrive, but he couldn't reveal this situation to anyone right now. He could only ask Zhang Sui to bear the burden for the time being, even though there were huge losses in the accounts.
The market remains frenzied. In daily financial news, analysts are still clamoring that America's golden age will never end, and the market continues to rise. The CEO of Lehman Brothers even publicly mocked those who were bearish as a bunch of bumpkins.
Zhang Sui pressed the button on the remote control and turned off the large-screen TV. For every point the market rose, Dark Night Capital would lose three points. The pressure was immense!
Her subordinates came to report to her one after another.
"Boss! The accumulated unrealized losses have reached 12, and the risk control committee has sent us another inquiry letter."
"Boss! Barclays' first premium payment deadline is next Friday, and we need to prepare $8000 million."
"Morgan Stanley informed us that we need to add 5% margin to our short positions in Lehman Brothers, which must be in place by 11:00 AM tomorrow, or they will forcibly liquidate our positions."
""
Suppressing her irritation, Zhang Sui replied calmly, "I understand!"
The market was still trending upwards, but their boss was stubbornly clinging to a bearish stance, which led to some doubts within the team and created a climate of suspicion and anxiety throughout the company.
Zhang Sui also wavered at times, but she still chose to trust her boss. She remembered her boss telling her, "Trust is being able to keep moving forward even when you can't see the light."
After reaffirming her resolve, Zhang Sui immediately issued a series of instructions to maintain a large short position.
After hanging up Zhang Sui's call, Huang Xiaochuan thought for a moment and then called Gao Song to his office.
"Please make the arrangements, I need to go to Hong Kong tomorrow."
"Understood! Should we inform General Manager Cao of Dadao in advance?"
"Can!"
"Okay, I understand!" Gao Song immediately went to arrange the schedule.
The next morning, Huang Xiaochuan arrived in Hong Kong.
Charlie Cao was already waiting on the tarmac.
As Huang Xiaochuan descended the gangway, he stepped forward and greeted him respectfully: "Mr. Huang!"
"Get in the car!" Huang Xiaochuan didn't exchange pleasantries and directly gave the order.
"Okay! Mr. Huang, please get in the car!" Charlie Cao opened the car door.
Before Charlie Cao closed the door, Huang Xiaochuan said to him, "Charlie, sit next to me."
Charlie Cho was overjoyed: "Great!"
He then closed the car door for his boss and ran to the other side to get in and sit next to him.