Chapter 66
Chapter 66
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Translator: MadScientist
Chapter: 66
Chapter Title: Soviet Collapse (3)
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In truth, there was hardly any reason for Nick Leeson to come here.
Let's think this through step by step.
Where's Nick Leeson from? He's the manager of Barings Bank's Singapore branch.
His unique investment method—what most people call fraud—couldn't happen without his direct involvement, so Leeson spent most of his time in Singapore.
There was no reason for him to get a visa and come all the way to the Soviet Union.
But... Leeson deals in CDS and Nikkei futures. Both are areas handled by Daeha Securities and Daeha Investment Bank.
So, it wasn't all that strange for him to make contact with the Daeha Group. I latched onto that one tiny thread and managed to arrange a meeting with Nick Leeson in Moscow.
'This place should be relatively safe.'
Meeting in Singapore would be too close to Korea. Too many prying eyes.
"I'm impressed. I thought I was pretty young, but you're no slouch either. Ah ha, is this the gap in talent? Anyway, it's a pleasure to meet the famous manager of Barings Bank's Singapore office."
"Mm, I was thinking the same thing. It's been a while since I've seen someone younger than me... at our level, that is."
"Ahaha! I'm older than I look, so you don't have to sugarcoat it."
"...You look young for your age."
After a brief exchange of greetings, we got down to business.
"You want to enter into a CDS contract on Soviet companies and government bonds."
"Yes. There's been talk inside Daeha Securities about risk management. As you know..., things feel unstable here? Coming here only made me worry more. You can't get anything done without slipping something to the corrupt bureaucrats..."
"Hmm, that's interesting. I figured you were a pretty bold company. In fact, haven't you held more sell positions than buy positions on CDS?"
"That's Daeha Investment Bank... Ah ha, there's a funny story behind it. Sure, the Soviet Union's corrupt, but Korea isn't exactly some advanced nation either..., It came from higher up in the group. If it were my money or my subordinates', it'd be different, but when it's the bosses' money, you have to manage it carefully."
"Ah, I get it. Before I had my revelation, I used to make that kind of... mistake all the time."
I had to swallow a laugh at that.
'What revelation? That you could blow the bosses' money on gambles and no one would notice...?'
I barely kept my lips from twitching and smiled back.
"Well..., all sorts of things happen in the world."
Hm.
After chatting a bit, unlike that Yuri Chebrikov guy or whatever his name was, Nick Leeson turned out to be a pretty fun fellow. He had a knack for making even obnoxious remarks entertaining.
Truth be told, aside from that mouth of his, there wasn't much else to him. A guy with a bad family background, poor education, and no real experience had somehow gotten posted as Barings' Singapore manager at a young age. It just shows what a master scammer he is.
And right now, even though he's committed multiple financial crimes that could land him in jail if discovered, he's sitting here chatting away calmly.
'He must be sweating bullets inside.'
As if proving my guess, despite his relaxed demeanor, his attitude toward the contract was consistently urgent.
"Why not take this contract further?"
"Oh, I don't have that kind of discretion. Sorry."
He mostly tried to squeeze more deals out of me for extra cash.
"The premium payment..., in dollars?"
"Pardon? No. Yen, please. I handle the Nikkei index."
He preferred yen.
And the clincher...
"Miss, and as you know..."
"It's a secret, right? Don't worry. No one would think others are coming to the Soviet Union to trade."
He wanted to keep the position hidden.
◇◇◇◆◇◇◇ After wrapping up the deal with Nick Leeson, I lay on the hotel bed and carefully examined the contract.
'This contract requires a payment of about 10 million dollars...'
That's a hefty amount for hedging. Leeson might think I'm cooking the books for some slush fund inside the Daeha Group.
Leeson's scam involved the 88888 account, as I'd mentioned.
He'd shift futures trading losses to this special account and only report profits to the higher-ups.
But that raises a question. Wouldn't the Singapore Futures Exchange (SIMEX), which managed that account, notice?
Of course not.
SIMEX demanded margin calls daily, and Leeson had to pay them in yen. Those margins had to come from sources Barings' headquarters wouldn't know about.
In the original history, Nick Leeson took massive straddle sell positions (selling both call and put options at the same strike price) to offset losses, pocketing the premiums into the 88888 account.
What happens? On the balance sheet, losses and gains cancel out perfectly.
It's ingenious. With this method, SIMEX and Barings HQ, who only saw the books, couldn't spot Leeson's losses.
Of course, blindly trusting submitted ledgers was a pretty idiotic system.... But what can you do.
Even God couldn't outsmart the greatest genius Nick Leeson, who fooled even the on-site audit teams.
How did I figure it out? By reverse-engineering from his option sell volumes. If losses matched option premiums exactly, those premiums were his losses.
But here's the biggest issue.
-So, if he'd just stuck to option sells without futures trading, wouldn't the losses have stayed manageable?
Right. If fooling the balance sheet had continued indefinitely, Leeson wouldn't be a scammer—he'd be a legendary hedger.
But why are net short options called risky positions? Because if it goes wrong, you're screwed.
Straddle sells are especially hard to hedge. You lose if the index rises or falls.
On top of that, Leeson cranked leverage to insane levels, so the losses piling up in the 88888 account outgrew what option premiums could cover.
'It's a bit different now, though.'
Now he had CDS contracts as an extra tool.
What does that mean? He had a way to take on even more risk.
Unlike straddle sells, CDS was relatively safer, a different asset, less likely to be detected..., and most importantly, his massive option short positions had become too heavy to handle.
Fewer players in the market were willing to take the other side. In jargon, liquidity had dried up. It's like offering 10 billion dollars but no one to pay the countervalue—you can't use it.
So..., Leeson had no choice but to take shady deals like this.
"Yeon-ha, do you know how much this contract is worth?"
-Flutter.
I smiled brightly and shook the contract. Choi Yeon-ha stared at the paper with tense eyes, as if trying to bore holes through it.
"...You said 10 million dollars, didn't you?"
That's the premium I had to pay.
But..., I peeked into the future, and the Soviet Union collapses?
A bit early.
"No. It's worth 200 million dollars. With a 5% premium..., dear Mr. Leeson has to pay 200 million."
[In the event of the Soviet Union's dissolution, it will be deemed equivalent to sovereign default due to no entity to repay Soviet bonds. Deadline: December 31, 1991.]
Tiny writing in the contract's bottom corner clearly stated as much.
◇◇◇◆◇◇◇ After my secret meeting with Nick Leeson, I went to find Mr. Chebrikov again.
"...Just so you know, even though I use the Chebrikov name, I'm not closely related to him. Please keep that in mind."
"So your uncle works at the KGB..."
"Ah, he's a different person from my uncle. Uncle's still active in the KGB..., a colonel now."
Aha, got it.
"Mm, so who is he...? I don't know many Soviet figures."
"Oh, I thought you knew. Well, you're not from KGB circles, so maybe not. Viktor Mikhailovich Chebrikov..., ring a bell?"
...Ah.
A big shot.
The KGB chairman replaced two years ago after clashing with the current General Secretary. I'd seen him on the news a few times, but Russian names are complicated, so it took a second. The pronunciation's different from what I expected.
Lately, Vladimir's been my main focus, so I mix up priorities sometimes.
Anyway, a former KGB chairman is huge. Sure, he's retired, and the man I'm meeting is a distant relative, but connections are connections.
-Click.
I opened the door to a modest but incredibly luxurious mansion.
"Woof! Woof!"
'Oh, a doggo.'
A quintessentially Russian dog greeted Yuri Chebrikov. Alaskan Malamute, probably.
He gave the dog a quick pat, then smiled at me as I stepped back slightly.
"It's used to people, so it's safe."
"Mm..., cute. Belka, come here."
Yuri chimed in awkwardly from the side.
"...Its name isn't Belka."
I lightly ignored him and petted Belka's head, playing for a bit.
Yeah, yeah, so cute.
Maybe I should get a dog someday.
A well-behaved one.