America's No. 1 financial conglomerate

Chapter 618 Wall Street's Losses

At 8 p.m. sharp, the streets of Lower Manhattan in New York City have lost their daytime hustle and bustle, except for the financial landmarks along Wall Street, which remain brightly lit.

Outside the imposing granite building of the Federal Reserve Bank of New York, a black Lincoln sedan slowly drove in and stopped in front of the bank.

Morgan Stanley CEO Philip had just stepped out of his car when he saw Goldman Sachs President Paulson yelling into his phone, spittle flying, "Tell the Tokyo traders to keep a close eye on the ruble exchange rate!"

The two walked side by side through the revolving door, facing the same crisis, and neither had the right to laugh at the other's predicament.

As soon as he entered the lobby, his personal assistant sent him a text message: "The ruble exchange rate fluctuation band has been widened to 1:9.8, market selling pressure continues to intensify, and the technical analysis shows that the exchange rate will break through the 1:10 mark in an instant. There are signs of liquidity shortage in the related derivatives market."

After reading the message, Philip frowned slightly, his fingers tapping rapidly on his phone screen as he replied, "Closely monitor market dynamics, notify the risk control department to activate Level 1 alert, and be prepared to deal with extreme situations at any time."

After sending the message, he put his phone back in his pocket, his expression growing increasingly serious.

The ruble's exchange rate has spiraled out of control far faster than expected, meaning the crisis could be more destructive than anyone anticipated.

The elevator ascended to the tenth-floor conference room. Through the crack in the door, one could vaguely see that the conference room was already filled with people, all of whom were the heads of top financial institutions on Wall Street.

At the head of the long table in the conference room, Federal Reserve Chairman Alan Greenspan was already seated.

As the two arrived, the meeting room seats were gradually filled, and eventually, the heads of 16 Wall Street giants were all present.

Once everyone was seated, Greenspan finally broke the silence.

The central bank leader, who has been at the helm of the Federal Reserve for many years, spoke directly tonight without any preamble or pleasantries, saying, "Gentlemen, I think you all know why we have gathered here today. We have less than 14 hours."

His voice wasn't loud, but it resonated in the quiet conference room, each word striking the hearts of everyone like a heavy hammer.

Everyone understands that the 14 hours Greenspan mentioned refers to the opening time of the New York Stock Exchange the next day.

In other words, they had to develop an effective response strategy within those short 14 hours.

"Since time is short, let's start by revealing our resources." The first to break the silence was Harrison, CEO of Chase Manhattan Bank.

"Chase Manhattan currently holds $18 billion in Russian federal government bonds, in addition to $23 billion in loan exposure to commercial banks in Russia."

"But commercial bank loans are secured by collateral, so the risk is relatively controllable." Harrison tried to keep his tone calm, but the worry in his eyes was hard to hide.

In the current market environment, even assets with collateral may face significant risks due to a decrease in the value of the collateral.

Harrison had barely finished speaking when the sound of a pen rapidly scribbling across paper came from the other end of the conference room.

Bankers Trust CEO Lewis was pale and his hands trembled slightly. "Our risk exposure has been identified, and preliminary estimates suggest a loss of up to $4.88 million, which is equivalent to 80% of our net profit for the first half of the year."

He took a deep breath and continued, "What's worse, after the stock market closed this afternoon, Moody's put our credit rating on its watch list and made it clear that a future downgrade is not out of the question."

Everyone gasped, their faces showing shock.

Being placed on a credit rating watch list means that banks' financing costs will rise sharply, market confidence will be severely damaged, and customers may even redeem their funds.

This is undoubtedly adding insult to injury for bankers' trusts that are already in crisis.

Philip glanced at Lewis discreetly, cleared his throat, and said, "Morgan Stanley's proprietary trading account currently has $22 billion in exposure to Russian-related assets, but fortunately, we have successfully transferred 60% of the risk through derivatives such as credit default swaps, so the direct losses we face are relatively limited."

But then his tone shifted, his expression instantly darkening and his voice becoming serious. "The real trouble lies in our clients' margin calls. The three hedge funds we manage have triggered mandatory stop-loss orders due to their large holdings of Russian-related assets, facing huge losses and massive redemption pressure from investors, leading to a sharp increase in liquidity risk."

Paulson even stood up and said, "Goldman Sachs' debt is estimated to be no more than $5 million, which is not fatal for us."

Goldman Sachs knew Russia's financial situation best; its initial role in helping Russia issue bonds was a prelude to its withdrawal from the market.

Unfortunately, they were too greedy, thinking that Russia could hold out for at least another six months and wanting to continue earning interest.

He now wishes he could strangle those corrupt Russian officials. If it weren't for them, Goldman Sachs would be in a completely different situation now; instead, they could have planned ahead and made a fortune.

"The biggest problem now is that market liquidity is drying up rapidly!" Paulson's voice was filled with strong emotion. "This afternoon, in the London interbank lending market, the three-month dollar lending rate has soared to 6.25%, a significant increase of 140 basis points from 4.85% a day ago."

"This is an extremely dangerous sign. No one can guarantee how high the interbank lending rate will rise tomorrow."

He paused, his gaze sweeping across everyone in the conference room, and said in a heavy tone, "What we are facing now is no longer simply the Russian debt problem, nor is it the loss problem of a single institution; it is a crisis of confidence in the entire market!"

"When banks dare not lend to each other, and when investors lose confidence in all financial assets, the consequences will be unimaginable!"

Sandy Weir, on the other hand, remained calm. In situations like this, banks are much more adept than investment banks.

After all, once investors withdraw their funds from investment banks, they are unlikely to leave huge amounts of cash at home. Some will buy safe-haven assets such as US Treasury bonds, while others will deposit them in banks and continue to wait and see.

"Citigroup's Moscow branch has suspended dollar payment operations to avoid the risk of a large-scale bank run. The estimated losses are acceptable and will not exceed $12 billion."

His tone was calm, as if he were stating a fact unrelated to himself, but the seriousness in his eyes showed that he was equally cautious about the current situation.

Subsequently, each firm reported its potential losses, with Merrill Lynch reporting the highest at over $36.8 billion in debt.

After everyone finished reporting, Greenspan, who was sitting in the first seat, frowned even more deeply.

His fingers tapped lightly on the table, producing a crisp sound that seemed particularly jarring in the quiet conference room.

"Are you sure? This is all your losses?"

Everyone turned to look at him, not understanding what he meant.

What's wrong?

Are you complaining that we didn't report enough?

But in Wall Street, everyone knows that the squeaky wheel gets the grease, and it's always overstated, never understated.

Greenspan ignored the crowd's questions and offered no explanation, but instead nodded to his secretary who was standing at the conference room door.

The secretary immediately understood and came in with a thick stack of documents, distributing them to each of the financial giants present.

When everyone received the document and saw the striking red number marked on the title page, their pupils instantly contracted, their faces showed disbelief, and their breathing became rapid.

According to data obtained by the Federal Reserve, U.S. financial institutions hold at least $467 billion in Russian-related bonds.

The 16 financial giants present at the event had a combined size of less than $200 billion, less than half of the total size.

So, which institutions hold the remaining Russian bonds?

Who is frantically hedging in the Russian market?

With a bond issuance exceeding $250 billion, what will be the risk exposure behind it?

Ten times?

Or twenty times?

Even higher?

Everyone broke out in a cold sweat, their backs instantly soaked with cold sweat.

They all understood that a huge financial landmine was hidden behind this, and once it exploded, no institution would be spared, and the entire American financial system would be devastated.

"Who? Who exactly is holding so much Russian debt behind the scenes?" Harrison could no longer remain calm and roared in a low voice, his tone filled with anger and fear.

Sandy Weir, his expression grave, tapped the table and said, "I want to remind everyone that during the Mexican peso crisis in 1995, the Federal Reserve stabilized the situation by coordinating loans. What's needed now is collective action; this time, we must take the plunge."

His meaning is very clear: the Federal Reserve is injecting money, everyone is contributing money, the problem is identified, and collective funding is injected to bail it out.

"Collective action?" Richard Fuld sneered. "You Citigroup not only have Russian debt, but also a $170 billion exposure in Latin America. Of course you want the Fed to ease monetary policy."

He also wanted to loosen monetary policy, but this money wasn't meant to be used to help others in emergencies.

"I really suspect that you and Ernst planned this together." Sandy Weir glared at him, and everyone else looked at him too.

Today, Ernst Asset Management dumped financial stocks, and of the Wall Street giants, only three were not directly affected.

Chase Manhattan, Morgan Stanley, and Lehman Brothers.

Throughout the entire process, neither JPMorgan Chase Manhattan nor Morgan Stanley were involved in the China Telecom scandal or the short-selling of Leap Games; they had no connection whatsoever, not even financial support.

As for Lehman Brothers, everyone knows that if the dedicated lines from mainland China Telecom were successfully launched, Lehman would be the biggest beneficiary on Wall Street.

"What? You just hosted a banquet for them a few days ago, and now you're talking badly about them behind their back?"

Richard Fuld made a sarcastic remark, then scoffed, "Don't think I don't know. Citigroup and iTech are talking about Series B funding. Who knows if there's anything fishy going on?"

Greenspan cleared his throat, and the meeting room immediately fell silent.

"On October 24, 1929, the Morgan financial group called on bankers to inject funds to save the market, but then New York Federal Reserve President Strong refused to cooperate, which resulted in the Great Depression."

His voice was calm yet powerful, carrying the weight of history: "History doesn't simply repeat itself, but it does rhyme. Gentlemen, I don't want the tragedy of 1929 to be repeated today."

He tapped the table, his gaze sweeping over everyone present, and said in a serious tone, "The current situation no longer allows us to suspect or blame each other. We are one, sharing both prosperity and adversity. If we cannot unite and work together, we will face mutual destruction."

"I think what we need to know most right now is where this big mine is," Philip said, clearly supporting Sandy Weir's opinion.

As if he had heard his question, the conference room door was hastily pushed open, and Federal Reserve officials rushed in in a panic. "Watch the news, CNBS."

As soon as he finished speaking, everyone's phones rang at the same time.