Reborn in Russia as a Big Shot

Chapter 104 A $100 Million Bet on Subprime Mortgages Goes Wrong

Besides "Taquin and Lucreza," which has already been sold, Kumarin has twenty-one paintings left with Li Xiang.

Li Xiang has commissioned professionals to appraise the property and issued a relevant appraisal report. With the report, the property can be used as collateral to apply for a bank loan.

However, artworks have very poor liquidity, and most commercial banks are conservative when accepting them as collateral, lending out only about 40%.

According to industry standards, using the remaining twenty-one paintings as collateral, they could probably get a loan of $1500 million.

Of course, if someone uses connections to deliberately inflate the appraised value, that's a different story.

With the help of insiders and outsiders, anything is possible: a broken stone can be turned into jade, and fake gold into real gold.

This year's Spring Festival is relatively early; Lunar New Year's Eve is on February 6th.

There was something very important that needed to be taken care of before the end of the year. Li Xiang returned to St. Petersburg from Vladivostok and immediately arranged to meet with Pierce.

Pierce: "I've already met with Durov. Integrating SkriI into VK for joint development would be a great thing for us."

Although Pierce doesn't understand the internet, he has extensive experience in finance, and so far, he seems to be doing quite well in his position as Skril's Russia regional manager.

This was a golden opportunity for him, and he acted very proactively.

"Let's not talk about that. I haven't been able to sleep lately. I'm under too much pressure and have insomnia." Li Xiang pointed to his eye sockets. "Look at my dark circles."

There are no dark circles under my eyes, they're just from makeup.

Li Xiang sighed three times and then said, "Now, every time I close my eyes, all I see is the subprime mortgage crisis. If the US subprime mortgage crisis continues to worsen, I'm finished."

Pierce: "Highly leveraged acquisitions are very risky, but it's already done, and there's no use regretting it now. You should relax and try not to think about it."

Pierce certainly hoped Li Xiang could overcome this difficulty, but if he really couldn't—

Li Xiang's bankruptcy is not Skri's bankruptcy. It's the same if he gets a new boss. He's just an employee, so it doesn't matter who he works for.

Li Xiang: "I plan to buy credit default swaps from the five major Wall Street investment banks to hedge my position."

"That's one idea," Pierce said, offering to help his boss after learning of Li Xiang's thoughts. "I can help make the contact. How many are you planning to buy?"

Li Xiang deliberately frowned, feigning concern, and asked, "Do you think the likelihood of breaching the contract is greater, or the likelihood of not breaching it?"

Credit default swaps, or CDS for short, are credit derivatives invented by JPMorgan Chase in 1995. They are essentially insurance contracts.

The buyer pays the seller a "premium" periodically, and the seller compensates for the loss if the debtor defaults and is unable to repay the money.

Buying CDS from the five major Wall Street investment banks is essentially betting on their debt defaults.

Since the initial signs of the subprime mortgage crisis last year, the prices of CDS from the five major investment banks have been rising. Li Xiang's entry into the market now is not due to any foresight.

It actually seems a bit like chasing high prices.

Pierce clarified, "Whether it's a big or small decision, I can't tell you; you have to make the decision yourself."

Li Xiang sat there silently for three or four minutes, then suddenly said, "Deutsche Bank did an assessment before, and they can give MB..."

With an additional $3000 million in loans, the addition of the Skri1I sub-brand, and the strategic partnership agreement with VK, they'll definitely be able to secure even more loans.

"What's your estimate? If we lend as much as we can, what's the maximum amount Deutsche Bank can approve for us?"

Pierce considered it for a moment and replied, "At most forty million. Skri is just starting out, and there's too much uncertainty."

Li Xiang was silent for a few seconds before saying, "I also have a batch of oil paintings that I can borrow about 1500 million yuan from. Can you help me use them as collateral for Deutsche Bank?"

"These two sums together make 55 million. I'll try to find another 45 million to round it up, and use this 100 million to buy a year's worth of insurance."

Pierce was a little confused, and after a moment, he said, "You're being a bit impulsive right now. The idea of ​​buying CDS is not wrong. But this isn't hedging against risk."

"You went from extreme optimism to extreme pessimism in an instant, a complete reversal. I think you should calm down."

.

Li Xiang, breathing rapidly, said in a fast-paced voice, "I'm gambling with my entire fortune anyway. The worst outcome is bankruptcy. Since the result is the same anyway, why not go all out?"

"You're right to advise me to calm down; let's sort this out."

"Assuming that the subprime risk continues to worsen and the five major investment banks really run into trouble, even if only one of them is on the verge of bankruptcy, I'll consider my gamble successful."

"With the proceeds from this CDS, I can solve all my debt problems."

"But if the subprime risk is brought under control, my 100 million yuan in insurance premiums will be wasted, and I won't get a single penny back."

"However, I have another hedge, which Durov probably already told you about. They used data models to make a prediction that VK's registered users could surge to 5000 million this year."

"If they really achieve their goal, my VK shares will be worth at least 100 million. I just spent that money ahead of time."

"When the five major investment banks ran into trouble, I made a fortune."

"If there are no problems and the market improves, MB's debt can be safely resolved. If the pressure is too great, we can raise funds or go public. There are many ways to solve this."

"The only difference is the 100 million in insurance premiums. As long as VK can achieve its user growth target this year, this debt can be settled."

Li Xiang stared at Pierce with wide eyes and said firmly, "I think it's worth the gamble."

"If I'm really that unlucky, and the subprime mortgage crisis is resolved, but VK also fails to meet expectations, and both of these things happen at the same time, then I'll accept it."

Li Xiang murmured to himself, slowly saying, "Even if Lady Luck isn't on my side this time, it's worth it to gamble my life on this one time."

Pierce sighed. That's how technical gamblers are; they have their own complete logic system. You can tell from Li Xiang's eyes that he's beyond persuasion, and there's no point in saying anything more.

Li Xiang patted Pierce on the shoulder and promised, "Don't worry, even if something really happens to me, I'll make sure you're taken care of before the storm hits."

"Put Skril on hold for now. I'll approve a vacation for you. Focus all your energy on the loan and CDS."

superior."

'

"If I can really make the right bet this time, our future will be smooth sailing."

Pierce isn't like Gerry, easily swayed by a few words from his boss and willing to do anything for him. But considering his own interests, he's also willing to get things done for Li Xiang.

You don't necessarily lose if you gamble.

Moreover, even if Li Xiang really loses this time, a technically skilled gambler like Li Xiang might seize a new opportunity one day and turn things around.

It's always good to maintain a good relationship.

With the atmosphere built up, Pierce put on an acting show, his emotions becoming somewhat agitated. "Although I've left Deutsche Bank, the old connections remain, and I can contact Wall Street directly."

"Don't worry about things on my end, there won't be any problems."

"I need to take a look at your paintings. We also need to find a way to raise that 4500 million as soon as possible. Although CDS premiums are deducted quarterly, for such a large order, if we find someone to bet against us, the other party will definitely require us to pay the full amount of margin. We also need to ask the other party if they can afford to pay if we really lose."

"This $100 million has to be come up all at once, but it can be secured by US Treasury bonds, which can offset some of the interest."