Chapter 60
Chapter 60
Translation: Godtl
"It seems Jho Low has more connections with our country's businesspeople than expected. On top of that, I hear he's quite a renowned investor in the entertainment industry too."
"Is that so?"
"Yes. They say he's pouring money lavishly into entertainment ventures... It seems he's acting as a stepping stone connecting Southeast Asia's entertainment industry with Korea."
"I see..."
"...President. You're not interested in Jho Low right now, are you?"
Jho Low had long since fallen off my radar.
"Was I that obvious?"
"Yep. You tend to stay quiet when listening to topics that don't interest you, President."
Hye-rin burst into a stifled laugh.
And I still wasn't quite used to being addressed as "President."
"What do I do when I'm interested in a topic?"
"That's when your eyes light up and you immediately demand all related materials. Which is why I brought something I thought might pique your interest. Hehe."
It was none other than documents about Deutsche Bank.
I'd been getting a certain feeling about them for a while now, so I'd looked into it.
"As you know, Deutsche Bank leads European finance. Just the derivative products tied to it amount to trillions of won."
Europe has what are called the TOP3 financial institutions.
First is Britain's HBC,
Second is France's ANP Paribas,
And third is Germany's Deutsche Bank.
With a market capitalization of 18 trillion won.
Though officially called Deutsche Bank, it's actually Germany's largest financial group wielding formidable influence across Europe.
Its managed assets are estimated at nearly $2 trillion, yet its market cap remains surprisingly low. But this isn't unique - other financial institutions share this trait.
Because regardless of asset size, many are classified as derivatives or risky assets due to composition quality and capital adequacy issues.
Moreover, with returns disproportionately low relative to managed amounts, market caps naturally remain depressed.
"Additionally, Deutsche Bank has long been embroiled in money laundering allegations among other suspicions, which also contributes to its lower stock price compared to peers."
Deutsche Bank's current share price stands at 30 euros.
Given its massive scale, the bank has frequently been implicated in various illegal activities and paid numerous fines.
"But despite all the scandals, it remains rock-solid. You know why - Deutsche Bank is TBTF."
TBTF.
Too big to fail.
In Korean terms, it's "too massive to collapse."
Meaning it's a company that can never go under.
Because if Deutsche Bank were to fail, it wouldn't just shake Germany - all of Europe would tremble.
It has the same ripple effect as Lehman Brothers did in 2008.
"There's widespread criticism that Deutsche Bank keeps engaging in increasingly brazen dirty dealings precisely because they know governments will bail them out if they get in trouble."
One might wonder why one of Europe's top three financial groups would behave this way.
The reason is actually simple.
"To become number one. In fact, Deutsche Bank's chairman has publicly declared ambitions to dominate global markets by becoming Europe's top financial institution."
By sheer scale, Deutsche Bank's assets surpass even Gold Reagan's.
But here's the catch.
While Deutsche Bank's assets appear twice Gold Reagan's size, that's only because they've artificially inflated their balance sheet.
"Gold Reagan is an investment bank - meaning substantial proprietary capital. In contrast, Deutsche Bank has desperately bulked up mostly with derivatives and risky assets while lacking real capital."
Gold Reagan's fame stems from their investment firm operations.
Not just managing client funds, their substantial owned assets grant them influence across multiple nations.
Moreover, Gold Reagan maintains rigorous risk management, enabling effective crisis response to any contingency.
Deutsche Bank is the polar opposite.
While successful in inflating size through derivative sales, it's widely criticized for lacking crisis response capabilities when specific risks materialize.
Yet Deutsche Bank's collapse remains unthinkable, hence its "safe" reputation.
"Just look at their latest credit rating - maintaining an A with CDS spreads consistently around 300bp."
I thoroughly reviewed the Deutsche Bank materials but felt no particular inspiration. Yet something in Hye-rin's last words made my eardrums vibrate.
"CDS?"
"Yes. It was originally AAA, but frequent incidents dropped it to A. Despite being high-risk, since it's 'too big to fail,' that's likely why the rating stayed where it did."
CDS.
Simply put - bankruptcy insurance.
Where you pay an annual percentage of the contract amount if you believe a certain company might collapse.
What if that company really shuts its doors?
Then the contracts tied to the CDS would immediately activate, requiring the payment of the specified contract amount to the holders.
"..."
I quickly flipped through the documents to check the current CDS contracts tied to Deutsche Bank.
Just as Hye-rin had said—300 basis points.
Meaning, an annual premium of 3% of the contract amount.
If it were a company with high bankruptcy risk, that figure would jump to over 1,000 basis points.
"The CDS market has shrunk considerably compared to before, right?"
"Yes. Before the Lehman Brothers crisis, the market was so large it reached nearly 1 quintillion won in our currency. After taking a massive hit back then, it scaled down to around 8,000 trillion won. Still sizable, though."
It couldn't be helped—making money through CDS was absurdly easy.
For instance, you could keep issuing CDS contracts tied to "too big to fail" corporations like Kangsung Electronics or Microsoft and simply collect annual premiums amounting to hundreds of billions, even trillions.
Because those conglomerates would never collapse.
That complacency was exactly what led to catastrophic losses during the Lehman Brothers crisis.
Companies deemed "too big to fail" shuttered one after another, and the insurance payouts required through CDS contracts ballooned to staggering amounts. That triggered a domino effect, toppling financial institutions in succession.
Had CDS not existed, the Lehman Brothers crisis wouldn't have spiraled so catastrophically.
And yet, countless financial firms still issue CDS contracts.
Because aside from the rare, once-in-a-blue-moon crisis, there's no sweeter honey pot than this.
"..."
But this is serious.
When I first had that gut feeling about Deutsche Bank, I wondered if I should go short or long.
But this was different.
What my instincts were reacting so intensely to wasn't short or long—it was CDS.
And that could only mean one thing.
'Deutsche Bank is going bankrupt?'
One of Europe's top three financial institutions collapsing.
It was unthinkable.
Yet my instincts were screaming, emphasizing only the letters "CDS" in bold.
As if warning me to brace for the financial tsunami about to hit.
"...Could you check how much Deutsche Bank CDS is currently circulating in the market?"
"Huh? C—CDS?"
Hye-rin usually followed my instructions without question.
But this time, she froze, blinking rapidly, her body stiff.
She knew, too.
What CDS implied.
"Y-yes, right away!"
Hye-rin marched out with rigid steps, her posture unnaturally stiff.
It wasn't a situation to laugh at, but I couldn't help a quiet snort.
"But... it can't be, right?"
No matter how recklessly they'd expanded their balance sheet with risky assets.
One of Europe's top three financial giants—Deutsche Bank—collapsing?
Impossible.
Yet suddenly, the chaotic year of 2008 flashed through my mind.
Even though I'd been young back then, I remembered one phrase echoed by every media outlet:
[Lehman Brothers could never collapse!]
＊＊＊
Chairman Kang Sung-ho had a routine.
Without fail, he exercised every morning.
While running on the treadmill for cardio, he watched the morning news on the TV in front of him.
It was also how he caught up on overnight global developments.
"!?"
Then, the first headline of the morning news nearly made him stumble off the treadmill.
"Wait. That bastard is..."
The face dominating the morning news looked all too familiar.
"Jho Low?!"
The same Jho Low, the representative of 1MDB who had approached Chairman Kang and Gwangun Group days earlier.
Funds meant for Malaysia's national interest had instead been funneled into money laundering—lavished on Hollywood, U.S. real estate, luxury yachts, and more.
U.S. authorities had uncovered it all.
The Foreign Corrupt Practices Act, influence peddling through U.S. asset acquisitions.
Countless financial violations later, the U.S. government publicly exposed Jho Low's identity, thrusting the 1MDB scandal onto the global stage.
"You insane—"
His heart lurched.
Just how much had this lunatic siphoned off to piss off the U.S. government this badly?
The embezzled amount alone was a staggering 7 trillion won.
And if you factored in the money laundering, that figure skyrocketed.
If he hadn't listened to Jeong Jin-ho's advice and invested in 1MDB as Jho Low had suggested...
"Just thinking about it is horrifying."
How much had Jin-ho known back then?
No. This wasn't the time to leisurely work out.
"...Is there anyone who received money from Jho Low? Or anyone who entertained or was entertained alongside him?"
Chairman Kang Sung-ho hastily gathered the executives.
Rumors were spreading that Jho Low, the scammer of the century, had met with numerous Korean businessmen and even received lavish entertainment during his stay in Korea, causing a major uproar in the country.
"No one? Speak up now if there's anything. That way, we can prepare accordingly."
"..."
No one answered.
Surely, some among them must have been targeted by Jho Low's schemes to secure investment from Kangsung Group, yet none came forward with confessions.
"Very well. I'll trust those present here today. However, if anyone fails to come clean now and is exposed later, they'd better be prepared for the consequences."
In other words, he was telling them to cover their tracks well—whether internally or externally.
"So, how far does this mess extend?"
"They say Jho Low traveled across Asia, starting from the U.S., proposing investments in sovereign wealth funds or splashing money around while receiving lavish treatment. That's why the U.S. has issued a warrant for his arrest and is out for blood."
"Has he been caught?"
"Not yet. His whereabouts are still unknown. More importantly, the U.S. is determined to bring the hammer down on any companies involved in this scandal."
At that, Kang Sung-ho let out another sigh of relief.
If Jho Low's fraud had been exposed in another country, with no connection to the U.S., he might have just shrugged it off as unfortunate.
But the problem was America.
If someone—or some entity—inflicted significant damage on the U.S., they would hunt them down to the ends of the earth, no matter where they were.
That's why companies were trembling in fear right now.
Any sizable corporation inevitably had some ties to the U.S., and if they were slapped with fines, the losses would be catastrophic.
"So, we're in the clear?"
"Yes. If we had invested in the sovereign wealth fund back then... we'd probably be getting hammered like the other companies."
The executives also sighed in relief.
It was only because Kang Sung-ho had stubbornly held his ground that they had avoided disaster. Had they listened to the executives, they would've been utterly screwed.
"Either way, this is good news for Kangsung. Ever since we rejected the sovereign wealth fund, the Malaysian government has been putting pressure on us. But now, with the current prime minister implicated in this scandal, the public outrage in Malaysia is no joke."
The reason this scandal had blown up was that the current Malaysian prime minister was directly involved in the money laundering and fraud scheme using the sovereign wealth fund.
He had tried to line his own pockets with money meant for national interests.
In short, it was no different from stabbing the entire Malaysian populace in the back.
"So, could the Malaysian government change hands?"
"There's a very high chance. The current prime minister might even resign."
And with the U.S. involved, the Malaysian government couldn't just turn a blind eye.
"We'll need to cozy up to the next administration. For our sake."
"Yes. The incoming government will know we've been at odds with the current one, so we'll leverage that as much as possible."
"Right. For our electronics—and especially our semiconductor business—we must push hard into Malaysia. Otherwise, we'll never catch up to TSNC."
TSNC.
Taiwan's largest semiconductor foundry.
While Kangsung was the global leader in DRAM, TSNC dominated the foundry sector by a landslide.
"What about Europe? Is Deutsche still blocking us?"
"Yes. We tried to establish a headquarters in Frankfurt to collaborate with various semiconductor firms, but Deutsche owns the land we wanted. More importantly, they seem absolutely unwilling to accommodate us."
It was a frustrating situation.
If only those Deutsche bastards would step aside, they could swiftly advance, boost their semiconductor technology and production capacity, and topple TSNC's overwhelming market dominance.
"Chairman, may I say something?"
It was the president of Kangsung Securities, who rarely spoke up during executive meetings.
"Go ahead."
"There's a strange rumor circulating about Deutsche Bank right now."
"What rumor?"
"That Deutsche Bank might go bankrupt."
"...?"
Chairman Kang Sung-ho wasn't even surprised.
It was too absurd to take seriously.
"That's nonsense, isn't it?"
"Normally, yes. But hasn't it been revealed that Deutsche Bank is also involved in this 1MDB scandal?"
"How many times have they been caught laundering money?"
Other banks were no different, but Deutsche Bank was particularly notorious for financial crimes. And yet, they somehow kept their business running smoothly—it was almost laughable.
"Yes. The U.S. has announced they'll impose fines on Deutsche Bank, likely around $1 billion."
"Surely that alone wouldn't be enough to bring them down?"
"Correct. The issue is that the U.S. is currently imposing massive fines—tens of billions of dollars—on companies that exacerbated the damage during the Lehman Brothers crisis. Gold Reagan has already been hit with a fine in the tens of billions."
Come to think of it, I had heard that Deutsche Bank might face fines from the U.S. too, since they'd profited by offloading toxic assets.
"According to current rumors, the U.S. plans to impose a fine of around $14 billion. Originally, they intended a smaller penalty, but after discovering ties to the sovereign wealth fund, they likely added the 'crime of being displeasing' to the charges."
"$14 billion?!"
That amounted to nearly 16 trillion won in Korean currency.
And they'd have to pay every last cent of it as a penalty.
"But... wait a minute. Isn't Deutsche Bank one of Europe's top three financial institutions? Couldn't they handle $14 billion?"
"If it were HBC or ANP—the other two of the big three—they'd take a massive hit, but they'd probably manage. But Deutsche Bank is notorious for having a large presence without the capital strength to match."
"What about the German government?"
"Right. If Deutsche Bank collapses, it would trigger a Lehman Brothers-level crisis in Europe, so the German government couldn't just stand by. The problem is, the German government isn't in a great position either."
Germany had already implemented several bailouts, and more were still underway.
"During the Stumbagen crisis, an unknown entity appeared and swept through the market, didn't they? That led to multiple German securities firms shutting down. At the time, they carried out a large-scale bailout, including Stumbagen."
"And then?"
"After Brexit, trade with the U.K. was cut off, and German shipping companies—which had been operating through the EU—were rocked by China's maritime dominance. They managed to hold on until then, but when oil prices skyrocketed, Gwangun swept up all the contracts and nearly crushed them."
Germany's shipping industry was second only to Switzerland in scale.
You could easily find multiple German companies in the global top ten.
"And then the Belt and Road Initiative on top of that?"
"Yes. That was the final blow. The Chinese government funneled all the work to Chinese shipping companies, while Gwangun took over everything else. The German government had no choice but to implement another bailout just to keep things afloat."
All those massive companies had now collapsed.
Germany had been forced to step in with bailouts to mitigate the fallout.
"And now, with Deutsche Bank on the verge of imploding, the German government has a fire at its feet. The U.S. hasn't officially announced it yet, but it's almost certain they'll impose an astronomical fine today or tomorrow. The decisive factor? Someone bought massive amounts of CDS weeks before this blew up."
CDS were traded over-the-counter.
While confidentiality was guaranteed, it wasn't absolute.
Because when someone buys CDS in bulk, the securities firms, banks, or funds selling them have to hedge their risk by investing elsewhere.
That naturally spreads rumors, driving up CDS spreads.
Hadn't CDS prices skyrocketed right before Lehman Brothers collapsed too?
"A high CDS spread means the company's bankruptcy risk is elevated."
Seeing that, investors panic.
"Wait. So you're saying Deutsche Bank might actually go bankrupt?"
"Under normal circumstances, I'd say absolutely not... but with over $14 billion in fines and the German government already stretched thin from multiple bailouts, it's a 50-50 chance now. Plus, CDS spreads are surging at an alarming rate."
One of Europe's top three financial institutions might collapse.
It was unthinkable.
And someone had amplified the panic by buying up CDS in bulk.
If that fear spreads, customers with money in Deutsche Bank will rush to withdraw, triggering a bank run.
"Who the hell...?"
Then, a face flashed through my mind.
"Chairman Kim."
"Yes?"
"Didn't you tell me privately during Dieselgate that Gwangun was likely behind that big move in the German market?"
"That's right."
"Then what about this CDS situation?"
"I can't say for sure, but Stumbagen, the shipping takeover, the Belt and Road Initiative—they're all connected to Gwangun. If Gwangun was the one buying up CDS in bulk too..."
Chairman Kim swallowed dryly.
"...it would mean Gwangun planned everything from the start."
"...!"
Chairman Kangsung stared blankly into space.
This plan wasn't Gwangun's doing.
It was all part of Jeong Jin-ho's roadmap.
"It was just the name Gwangun that was borrowed."
And the destination that roadmap led to was only one place.
The downfall of Deutsche Bank.