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Chapter 867: Contract Termination
Upon hearing this, Zhang Sui and her team members all smiled with a hint of mockery.
Want to buy out all the outstanding CDS contracts for $30 billion? You're dreaming! Apart from the one CDS contract that has already been paid out, the total amount of default payouts for the remaining CDS contracts is $133 billion. You think you can just pay a fraction of that and get out of these contracts? You think you're so great?
Zhang Sui smiled slightly: "Mr. Stuart, these contracts are legal insurance agreements that we have voluntarily signed after repeated calculations by your Barclays actuarial models. This is also a guarantee we have set up to protect our own assets. Since you have launched this financial product, I hope you will continue to fulfill these agreements. We must respect the spirit of contracts. What do you think, Mr. Stuart?"
"Holy crap!" Stuart gasped. This woman was too greedy. According to Barclays' internal assessment, the remaining CDS contracts would result in a payout of $107 billion. (The two sides used different calculation models, so the results differed, and Barclays' calculations were based on an 85% loss scenario, hence the significant discrepancy.)
For a moment, the negotiations reached a stalemate. After a brief standoff, Stuart took the initiative to speak: "Madam, I believe that we have a good foundation for cooperation. Barclays Bank has been established for over a century and has an unparalleled reputation for reliability in the financial world. I believe that we have many possibilities for cooperation in the future. If this matter causes a rift, it will not be good for either of us."
Stuart's meaning was clear: you should know when to stop and give in. We'll also lose some money. In the financial market, you have to accept the consequences of your gamble. But generally speaking, Barclays Bank is like a house, winning more than it loses. In the long run, it's best not to offend us. In the future, we can cooperate and make money together.
Zhang Sui, however, appeared unconcerned, presenting evidence of current market trends and insisting on adhering to the contract terms, demanding that Barclays respect the spirit of the contract.
Anyway, the initiative is on our side, and the market trend is still spreading, and time is not on Barclays' side.
Seeing that Zhang Sui remained unmoved, Stuart had no choice but to relent: "Alright! $35 billion, we've come with sincerity."
Unfortunately, Zhang Sui remained unmoved. According to the pre-arranged plan, apart from the first few CDS contracts that would be fully paid out, the rest would be discounted. The reasons were simple: firstly, the investment banks that sold the CDS contracts had suffered huge losses; secondly, their side originally intended to take profits while they were ahead, and they had already made a considerable amount of money.
However, according to the plan, the remaining parts of these contracts with Barclays must be packaged together for at least $70 billion.
Given the significant uncertainties ahead, securing profits early is arguably the safest approach.
This was something Huang Xiaochuan had told Zhang Sui beforehand when she was in Shanghai. He said she should never be greedy and try to eat up every last penny in the market.
Zhang Sui wholeheartedly agreed. Given the current situation, the panic in the financial market will evolve into a systemic collapse. At that time, even if you hold a large number of CDS contracts, you may not be able to get the compensation smoothly. Moreover, the liquidation process will become long and full of variables. It is better to realize the profits at a reasonable price before the other party is completely desperate, and turn the paper profits into real cash. It is expected that in the next stage, cash will be king, and whoever has enough cash will be the king.
However, the other party was somewhat reluctant and stingy, so Zhang Sui didn't give in.
After another stalemate, Stuart squeezed out a little more, like squeezing toothpaste: "40 billion US dollars, that's the most I can do. Based on the contracts you signed, your profit margin is already more than twenty times."
Zhang Sui interrupted Stuart's dissatisfaction: "Mr. Stuart, we highly value our partnership with a long-established financial institution like Barclays Bank, and we also understand that continued uncertainty is detrimental to the stability of financial markets. Therefore, to show our sincerity and to facilitate this package deal, I have a proposal here."
Stuart immediately perked up, eager to hear what kind of proposal Zhang Sui would put forward. The essence of negotiating prices in the capital market is similar to that in the vegetable market; it's a back-and-forth exchange until an agreement is reached.
Zhang Sui stated clearly, "We accept the suggestion to buy out all contracts in one go, but 40 billion is not enough. Based on our risk assessment of all existing contracts and considering future circumstances, we demand 90 billion US dollars, paid in a lump sum. The remaining contracts will then be terminated, and we will be even."
9 billion! This figure is lower than Barclays' internal assessment of a minimum potential loss of 10 billion, but this money will allow Dark Night Capital to make a fortune, pocketing returns dozens of times higher than the premiums.
Stuart quickly calculated in his mind. According to the authorization given to him by the board, he could agree to this amount, but out of professional habit, he countered at the last minute: "82 billion US dollars, that's the absolute minimum."
Before he could even utter the word "final," Zhang Sui quickly interjected, "85 billion US dollars. If you agree, we can draft the termination agreement now."
Stuart struggled internally for a while, then pretended to think hard for a moment, and finally let out a long sigh as if he had unloaded a very heavy burden.
"Alright! Madam, I must admit that you are a very demanding but also very capable negotiating partner. $85 billion is a heavy burden for Barclays, but for the future of the bank, I, on behalf of Barclays, accept this offer, though I have one additional condition."
"Please speak!" Zhang Sui gestured for him to speak.
"Given your request for such a large lump sum payment, and given the current situation, we are experiencing some cash flow issues. If you could agree to allow us to offset the payment with some stock, it would help expedite the completion of this transaction."
"Stocks? What stocks?"
"Based on yesterday's market prices, the fruit company's stock is currently worth $13 billion."
Zhang Sui immediately approved: "Okay!" Changhong Capital had been increasing its holdings in the fruit company's stock, so they naturally accepted this offer that came to them.
Both of them stood up and shook hands.
The termination agreement was immediately drafted by the legal teams of both parties, and Stuart and his team stayed at the estate for three days for this purpose.
On the day he left the manor, Stuart had mixed feelings, a mixture of pain as if his flesh had been torn apart and relief as if he had been freed.
Zhang Sui's team raised their glasses to celebrate their victory. This was just one part of their operation, and they would continue to use the same tactic to reap the rewards one by one.