“Hey! Director Oh!”
The next morning.
The auditors stormed into Director Oh’s office.
“...Division Head. Please calm down. I’ll explain everything.”
Of course, they weren’t real auditors.
They were the Risk Management Team, who showed up like ghosts whenever losses occurred. They would start nagging at even the slightest “feeling” that losses might happen, and Director Oh seemed to have anticipated this scene already.
“What explanation? The bonds and stocks your team sold off yesterday alone were worth one trillion won! Does trading on the trillion-won scale overnight make any sense?”
It was only natural, since transactions on the trillion-won scale had taken place in a single night.
And at a massive loss, no less.
“You know, don’t you? How high yesterday’s CPI came out.”
“Everyone already expected the CPI to be high. Haven’t stock and bond prices already reflected all that?”
“No one predicted 9%. It far exceeded market expectations.”
“And that means you panic-sell into a crash? Do you know how much your realized loss was yesterday?”
“...It isn’t a loss. It’s profit. Interest rates will rise further, and bond prices will fall further.”
The division head’s hands trembled.
“What’s your basis? The Fed said yesterday they’d expected this much. They said the giant step would be the last one.”
“You know they said the exact same thing two months ago and three months ago, right?”
“What?”
“No matter how I look at it, the current situation is beyond Powell’s expectations. The Fed can’t control the market right now.”
The head of risk raised his voice even more.
“You’re saying the giant step isn’t the end? Then the Fed would have taken an ultra step, one percent, this time. If they’re going to raise rates again, why do a giant step?”
“I think it was a misjudgment. Frankly, haven’t they kept saying big step, big step, until we got here?”
After hearing the calm explanation, the head of risk’s agitation subsided a little. Looking only at the objective indicators, it was certainly a failure by the Fed to manage prices. If interest rates were likely to rise further, the bond sales were understandable at first glance.
“Fine. Let’s say the bonds make sense. But why did you sell all the SB shares?”
“I think it’s going to go bankrupt.”
“A 300-trillion-won bank is going bankrupt?”
“Look at its financials. Most of its assets are U.S. long-term bonds, which are currently plummeting.”
“In all my years, I’ve never heard of a bank collapsing because it bought U.S. bonds wrong!”
“...Division Head. Please just read this report once.”
The head of risk snatched the documents irritably.
He felt displeased from the very first page. Author: Associate Lee Sejun... Not a team leader, not a senior manager, but some associate whose name he didn’t even know?
And by the time he finished reviewing the report with hawk-like eyes, he was even more irritated.
“What is this? Is it a thesis on how hard it is for a bank to fail and how many coincidences have to overlap for one to collapse?”
“...After yesterday’s CPI announcement, fifty million dollars in deposits were withdrawn in thirty minutes. We can’t ignore this possibility now.”
“Before that happens, the Fed will send in firefighters! Does it make sense for a 300-trillion-won bank to go bankrupt?!”
It didn’t make sense. It wasn’t even a massive PF loan failure, but just bonds?
Of course, it was true that SB would inevitably suffer short-term losses from its long-term bond investments. But why did central banks exist? Weren’t they given money printers so they could lend to banks when short-term losses like this were unavoidable?
On top of that, this report wasn’t saying SB would collapse because its bond investments failed.
It was saying that because its bond investments failed, depositors would feel uneasy, a bank run would occur, and then it would collapse.
“Division Head...”
“Shut up! It’s unbelievable enough that you seriously believe this shoddy report, but you actually panic-sold because of it?”
“...”
“Have the overseas team withdraw from all assets immediately! For the time being, our risk team will manage the assets.”
The head of risk whipped away the security key, which was practically the pride of the equity team. It was no different from taking the royal warrant from a secret royal inspector.
But after turning away so irritably, he soon couldn’t take even a single step.
-S-Sorry. Director, urgent report.
The portfolio managers of the overseas equity team hurriedly opened the door to the director’s office.
Their faces pale, they were holding a report from the Bloomberg terminal, the fastest source of information in the world.
-It’s news that just came in from Bloomberg. Apparently, the Fed and SB executives held a secret meeting today, but the results weren’t good.
The head of risk was more shocked by this than Director Oh.
-According to people familiar with the matter, SB seems to have requested a loan from the central bank, but the Fed appears to have rejected it.
“W-What?”
-The White House’s movements are suspicious too. They’re delaying active measures to protect deposits. Because of that, hundreds of people are currently lined up in front of SB Bank.
As they said that, they showed the current CNN breaking news.
Even after watching the footage, the head of risk couldn’t believe it.
Despite it being early dawn by U.S. time, a long line had formed in front of SB Bank. Like a procession of refugees.
“D-Does this make any sense?”
-At this rate, the rush to withdraw deposits will get even worse starting tomorrow morning.
-U.S. long-term bond prices are currently plunging even further... There’s widespread speculation that SB is dumping them to secure funds for withdrawals.
The head of risk staggered and leaned against Director Oh’s desk.
He quietly set the security key down.
“Director Oh... Why did you do that... If it was a crisis like this, you should have called me at dawn yesterday.”
“I apologize.”
“To be honest, the reason I was angry today wasn’t because of the one-trillion-won sale. Thinking it over, the report’s contents do seem logically sound... It’s just a procedural issue, I suppose. If you anticipate a situation like this, consult with the risk team in advance.”
“I’ll be careful from now on.”
“Good... Seeing how long-term bond prices have plunged, it definitely seems like SB is dumping them. Let’s work overtime together today.”
*
[Breaking News! - Silicon Bank!]
The long procession of refugees continued from dawn.
Silicon Bank, located in California, was crowded even before opening.
The reason innocent depositors lost sleep and rushed there was because of the lukewarm attitude of the Fed and the White House.
With the Fed signaling interest rate hikes, long-term bonds plunged even further, and SB Bank was expected to suffer even greater losses. Yet no government agency promised to protect depositors. Rather, whenever reporters asked such questions, they were busy dodging them.
As a result, anxiety swept the market that the bank might go bankrupt and people might lose their entire fortunes. Eventually, when opening time approached, the angry crowd entered the bank while shouting at the top of their lungs.
But this was the age of mobile banking.
Those who were quick on the uptake had already moved their assets through mobile banking, and thanks to that, SB’s withdrawal limit was exhausted just thirty minutes after opening.
As this scene was broadcast live, the shockwaves spread across the entire United States.
With assets of 300 trillion won, SB was one of the top ten banks in the United States. Since a bank of that size had been smashed in thirty minutes, market chaos was naturally unavoidable.
As Wall Street broadcast the SB incident live, bank stocks fell into the abyss one after another, which soon led to concerns over the financial system.
As a result, regardless of company, all financial businesses that made money with money were hit by a wave of dumping. This panic selling soon led to fears of recession, and the market closed with the Nasdaq and S&P plunging three percent.
[Breaking News - SB Bank effectively suffering a bank run!]
[Is the pension fund the main culprit behind the depletion of the National Pension?]
[Again, again, again, they lost money! National Pension!]
[Pension fund reportedly invested around 40 billion won in SB Bank... U.S. bonds, which made up the majority of its portfolio, also in serious condition!]
Fortunately, as soon as the market closed, the White House indirectly expressed its willingness to protect depositors. However, it drew a firm line to the very end regarding any bailout plan for SB.
“Interesting, this guy.”
Park Seongcheol, head of the pension fund’s investment management division, looked over the report with a faint smile.
“Who did you say wrote this report?”
The head of the Risk Management Division answered.
“Yes. Associate Lee Sejun of the overseas equity team. He’s in his second year at the company.”
“How did someone in his second year predict this situation a week ago?”
“Well... It’s like a blind squirrel finding a nut.”
“It’s too detailed for that.”
The division head examined his personnel file with an intrigued expression.
He was a strange one. In the two years since he joined, there hadn’t been a single report where he stood out, but this time, he had predicted the market almost like a ghost. Was it really a coincidence?
“Anyway, so what did we do?”
“Yes. Fortunately, we sold all the SB investment before the stock price plunged. The loss was around sixty percent... but given the current situation, I think we can call it a forty percent gain.”
“And the bonds?”
“We were ahead by a hair. We took preemptive action before SB dumped theirs. Of course, losses were still unavoidable... but looking at long-term bond prices now, this is also closer to a profit.”
In truth, compared to the pension fund’s total assets under management, the 40-billion-won investment in SB was not that large a portion. The real achievement was that they had taken preemptive action before long-term bonds collapsed.
The fact that all of these responses had begun from nothing more than this report made the associate extremely commendable.
“Head of Risk. Then let’s put out some press releases too, aggressively. Looking at the news today, every economic paper is tearing us apart.”
“Shall we? We’d been responding passively because of portfolio exposure...”
“At times like this, it’s fine to brag a little. Announce that we disposed of all SB shares before the bank run, and that we responded rationally regarding long-term bonds too. And through an anonymous official, say that the investment management division is making sufficient investment returns, so they should hurry up with pension reform instead.”
Generosity, after all, comes from a full storehouse.
Recently, whenever the pension fund suffered even a small investment loss, media outlets would splash it across the headlines and the public would react sensitively. There was no one who didn’t know that this was all because of the projected depletion date of the pension fund.
“Understood. Then we’ll brag a little for the first time in a while.”
“By the way, what are you planning to do with the disposed assets going forward? Has Director Oh thought of another investment destination?”
“Not yet. And he explained that for the time being, they intend to continue selling.”
“Only selling? Why?”
“He says the market is too chaotic due to the interest rate hikes from the United States. He intends to gradually increase our cash holdings.”
The division head tilted his head.
“Just how far ahead is he anticipating? The Fed carried out a giant step this time. Then won’t inflation be brought under control, and won’t the trend of rising interest rates change?”
“I think so too, but... Director Oh is predicting the benchmark rate will go up to four percent.”
“Four percent? They’ll raise it another full percentage point from now?”
“Yes. He predicts the Fed will fail to manage inflation again this time. The basis for that is also in the report written by that associate.”
The division head smiled bitterly.
It was truly an era of great chaos. There was no predicting how long the Fed would keep raising interest rates. At this rate, they couldn’t buy bonds recklessly, let alone stocks.
“Fine, then. Director Oh will handle that well on his own.”
“Yes.”
“By the way, if U.S. rates are like that, Korea will have no choice but to raise rates reluctantly too.”
The division head said with a sigh.
“How much of a blow do you think the domestic stock market will take?”