Chapter 188: Bankruptcy Betting Agreement

“That Jho Low has even more influence than we anticipated,” Li Huilin reported, gently placing a stack of documents on Su Hao’s desk.
“He has extensive connections in the Southeast Asian business world, and I’ve heard he’s a big spender in the US, a well-known investor.”
Su Hao grunted in response, not even looking up.
“There are rumors that he’s pouring large sums of money into the entertainment industry in the US; his investment in ‘The Wolf of Wall Street’ even won an Oscar.”
“I see,” Su Hao’s response remained concise and economical.
Looking at Su Hao’s absent-minded expression, Li Huilin couldn’t help but laugh:
“Chairman Su, you have absolutely no interest in this Jho Low, right?”
More than no interest; that fat man’s name had probably already been kicked into the recycle bin by Su Hao from his mental “to-do list.”
“Is it that obvious?” Su Hao rubbed his nose.
“Absolutely!” Li Huilin exclaimed decisively. “If you’re not interested in a topic, you’re basically a tight-lipped person, sparing with words.”
“But what if I am interested?” Su Hao asked with interest.
“That would be amazing!” Li Huilin’s eyes lit up as she gestured vividly.
“Your eyes would light up instantly, like searchlights, and then you’d say, ‘Bring me all the relevant information!’
So, I brought you something that will definitely make your eyes light up. Hehe.”
What she presented was, like a treasure, an in-depth report on Deutsche Bank.
Su Hao had indeed been thinking about this for several days.
He felt that his inexplicable “intuition,” like a madman, kept pointing in this direction.
"Mr. Su, as you know, Deutsche Bank is one of the three giants in the European financial world.
The financial derivatives tied to it alone are worth trillions, measured in euros."
In the European financial landscape, HSBC, BNP Paribas, and Deutsche Bank are known as the "Big Three."
It's estimated that Deutsche Bank manages assets approaching two trillion US dollars.
However, its market capitalization is pitifully low.
The reason lies in its questionable asset structure and quality; its capital adequacy ratio has always been a major problem.
While it manages a large amount of funds, the majority are high-risk derivatives.
Furthermore, its returns have consistently lagged behind the pace of asset expansion, naturally resulting in a low market capitalization.
“Moreover, Deutsche Bank has a long history of misconduct, with numerous scandals involving money laundering and other shady dealings; its criminal record is thick enough to act as a bulletproof vest.”
Li Huilin added, “With its tarnished reputation, its stock price naturally suffers, currently hovering around thirty euros.”
But even with so many scandals, it remains standing.
Simply because it is a high-ranking member of the “TBTF” club—Too Big To Fail.
These four letters are its talisman.
It is a company that, theoretically, absolutely cannot go bankrupt.
Because if it were to collapse, not only would the German economy collapse instantly, but the entire European continent would be shaken to its core!
The financial tsunami it triggered was no less devastating than the Lehman Brothers bankruptcy storm that swept the globe in 2008!
"That's why there's been a constant stream of criticism, saying that Deutsche Bank is just taking advantage of its 'too big to fail' status, knowing the government will bail it out if things go wrong, which is why it's become increasingly audacious, recklessly testing the limits of self-destruction."
People often ask, why would one of Europe's three giants act like a street thug?
The reason is simple and brutal.
"To be number one!" Li Huilin succinctly revealed the secret.
"Deutsche Bank's ambitious chairman has already publicly boasted that his goal is to dominate Europe and then conquer the world!"
In terms of asset size alone, Deutsche Bank is even larger than Wall Street's legend—Goldman Sachs.
But there's a colossal trap hidden within.
“Goldman Sachs focuses on internal strength; it has ample capital and a solid, robust foundation.
But what about Deutsche Bank?
In its pursuit of scale and short-sighted profits, its assets are filled with flashy derivatives and high-risk instruments, with very little of its own real capital—purely ‘bloated and bloated.’”
Yet, everyone seems to think it's safe.
Because, in everyone's mind, the collapse of Deutsche Bank is simply a pipe dream.
“This time, its credit rating remains firmly at A, so its CDS spread will likely remain stable at around 300 basis points.”
Su Hao quickly flipped through the documents, initially without any particular feeling.
But Li Huilin's last word made Su Hao's pupils shrink sharply.
"CDS?"
"Yes. It was originally rated AAA, but after too many scandals, it dropped to A.
Although the risk is high, everyone thinks it won't fail, so the credit rating agencies gave it a preferential rating."
CDS, Credit Default Swap.
Simply put, it's bankruptcy insurance, or a "bankruptcy betting agreement."
If you think a company is about to go bankrupt, you can buy a CDS related to it, paying a "premium"-like amount each year.
What if that company really does go bankrupt?
Congratulations, your CDS contract immediately becomes effective, and the party that sold you the contract must pay you a huge sum of money as agreed.
Su Hao's fingers quickly swiped through the information, landing on the section about Deutsche Bank's CDS.
Sure enough, 300 basis points.
This means that by paying only 3% of the total contract amount each year, you can buy a "bankruptcy betting agreement" with Deutsche Bank.
Of course, if it's a truly high-risk company on the verge of bankruptcy, the CDS wouldn't be 300 basis points; that number could soar to over 1000 basis points.
"The CDS market has shrunk considerably since then, hasn't it?"
"Yes. Before the Lehman Brothers scandal, the global CDS market was astronomical, worth hundreds of billions.
Then it was devastated by that crisis, the market size was halved and then halved again.
However, even a weakened giant is still a huge gamble."
For large investment banks, making money with CDS is usually incredibly easy.
For example, continuously issuing CDSs for behemoths like Apple or Microsoft—the probability of these companies collapsing is lower than a collision between Mars and Earth.
Large investment banks could sit back and collect huge sums of "premiums" every year.
However, the financial giants of that time thought the same way, only to suffer an epic setback in the Lehman Brothers collapse.
Those companies they thought were "impossible to fail" fell one after another like dominoes.
The massive payouts from CDSs instantly triggered a chain reaction, ultimately leading to the collapse of the entire financial system.
It can be said that without the powder keg of CDSs, the financial crisis of that time would never have spread so devastatingly.
Even so, major financial institutions still flock to them.
There's no way around it; aside from the occasional catastrophic disaster, it's just too easy to make money with this stuff.
“…”
Su Hao's expression gradually turned serious.
This is bad.
Something terrible has happened.
At first, when the name Deutsche Bank popped into his mind, he thought his intuition was telling him to short or long.
But now, it seemed completely different.
He was staring at the letters "CDS," and in a daze, it seemed as if huge, blood-red letters were magnifying them infinitely, flashing wildly with neon effects!
And this meant only one thing.
A conclusion powerful enough to make the whole world tremble.
'Deutsche Bank…is going bankrupt?!'