Chapter 116: The Greek Financial Crisis

The Greek Financial Crisis

New York, Manhattan, Dojin Capital Headquarters

“Long time no see, sir.”

Lisa and Grant greeted me with bright smiles.

Although we had kept in touch since the global financial crisis,

this was the first time I had visited in a while.

“You two must be working hard.”

“Haha, hard work? Thanks to you, sir, life has been so enjoyable lately.”

Despite their heavy workload, neither Lisa nor Grant seemed particularly stressed.

Perhaps they were achieving more than they were struggling.

After a brief chat over coffee,

we got straight to the meeting.

“First, tell me about the hedge funds we acquired after the Lehman crisis.”

Dojin Capital had grown significantly since its inception, and managing it with just the two of them was becoming a challenge.

So, I had instructed them to look into acquiring any worthwhile hedge funds that had failed.

I had received reports that they had acquired a few.

Lisa pulled up the data and began her explanation.

“The first acquisition was Acron Capital, a Manhattan-based hedge fund established in 1997. Before the Lehman crisis in 2008, it was a high-performing fund with assets under management (AUM) of up to $10 billion. However, during the financial crisis, a wave of client redemption requests led to a liquidity shortage, forcing it into bankruptcy.”

As I’m not a financial expert,

I had never heard of Acron before.

But from the explanation, it seemed like a decent acquisition.

“What was the acquisition price?”

“Creditors were eager to offload Acron, so we managed to acquire it for a relatively low price of $420 million. Considering we also secured their high-quality investment assets and professional staff, it was essentially acquired for less than half its value.”

Grant continued.

“In addition to Acron, we acquired two smaller hedge funds: Stella Investment, which specializes in equity derivatives trading, and Huntington Capital, which excels in bond management and macroeconomic analysis.”

“What were the acquisition prices?”

“Stella was acquired for $150 million, and Huntington for $180 million. Compared to pre-financial crisis prices, we secured both the talent and systems for about a quarter of their original value.”

I nodded in satisfaction.

Lisa added further explanation.

“With these three acquisitions, we can now go beyond simple fund management to include proprietary trading, risk management systems, and investment analysis.”

Listening to her, I became curious about their performance.

“So, how have you been managing assets since the last financial crisis?”

As if he had been waiting for the question,

Grant answered without hesitation.

“As you instructed last time, sir, we aligned our strategy with the Federal Reserve’s policy of easing monetary policy and maintaining zero interest rates.”

With all the insurance companies and banks in the U.S. going bankrupt,

it was only natural for the Fed to lower interest rates and inject massive liquidity.

Grant continued.

“We focused our portfolio on tech and financial stocks. By positioning ourselves at the lowest point right after the crisis, we’re currently achieving an average annual return of over 32%.”

In terms of actual profits, they had earned $2.2 billion annually.

“Then, what is Dojin Capital’s total assets under management currently?”

Through the last global financial crisis, I had secured $11.8 billion in assets.

Of that, $2 billion had been sent to Dojin Construction, and an additional $3.5 billion had been converted to Korean won and sent to Dojin Tech.

With the hedge fund acquisitions and remaining funds, we had approximately $5.5 billion left.

“Currently, our total assets under management are $13 billion. Of this, $9.7 billion is our internal capital, or equity capital, and the remaining $3.3 billion is client assets acquired during the hedge fund acquisitions, or assets under management (AUM).”

In my absence, Grant and Lisa had turned $5.5 billion into $9.7 billion.

While they were earning significant performance bonuses,

their achievements were well worth every penny.

“First, please transfer $2 billion to Dojin Tech.”

This was for the pop-up stores and overseas marketing costs for the Quantum promotion,

as well as for the development of the A-series.

“Converting $2 billion to cash will take about a week.”

“That’s fine. Send it as soon as it’s ready.”

“Yes.”

They could have asked why I was requesting the transfer,

but neither questioned my decision.

I continued.

“I came here today not only to secure operating funds for Dojin Tech but also to discuss our future investment direction.”

While I’m not a financial expert,

the last financial crisis made me realize the value of my memories.

That’s why I could advise them to position themselves before the Lehman crisis, knowing the Fed would lower rates and increase liquidity.

Following that advice led to another significant profit.

Lisa and Grant looked at me seriously.

“Do you have something in mind, sir?”

I nodded at Grant’s question.

“We profited greatly from the last global financial crisis because we anticipated the risks the market overlooked. I believe a similar situation will soon occur in Europe.”

Grant’s eyes widened momentarily.

“Europe? You mean… the PIIGS countries?”

“Yes, specifically Greece.”

Greece’s fiscal situation was already precarious,

and the European Central Bank (ECB) and the IMF would soon demand restructuring and severe austerity measures.

The resulting volatility in European financial markets was an opportunity I couldn’t miss.

“Greece is definitely in a tough spot.”

Grant seemed to know something about Greece,

nodding in agreement.

However, Seong-hwan, who had come with me, looked confused.

“Hyung, why Greece? Isn’t that a European tourist destination?”

“Yes, it’s famous for the Mediterranean and Santorini. It’s a popular tourist spot.”

“So, a country like that is in danger?”

“It may seem fine on the surface due to the many tourists,

but the reality is quite different.“

For Seong-hwan’s benefit,

I pulled up a map on the monitor and added some data.

“Since joining the Eurozone in 2001, Greece has mismanaged its finances. It’s so bad that government debt has surpassed 100% of GDP, and with a population of 11 million, there are 800,000 public servants.”

With one of the highest ratios of public servants to population in the world, corruption was also at its peak.

Lisa calmly added to the explanation.

“Greek government bonds were excessively purchased by German and French banks for political reasons related to European integration.”

This was because, after joining the Eurozone, many investors had a major misconception about Greece.

“After all, in the Eurozone, German bonds and Greek bonds are the same, right?”

“Then, buying higher-yielding Greek bonds is much more profitable.”

Normally, weaker countries should have lower bond credit ratings,

but Greece’s bond credit rating remained abnormally high simply because it was in the Eurozone.

I added further explanation.

“In this situation, if the ECB or IMF demands austerity, the Greek economy could collapse entirely.”

Seong-hwan finally seemed to understand, nodding slowly.

“So, a currency crisis like the one in our country in 1997 will happen in Greece?”

“Similar.”

The difference was that,

at the time, our country’s fiscal situation wasn’t bad,

but the crisis occurred due to a lack of foreign exchange, specifically dollars.

Greece, however, was facing a crisis because its fiscal situation was genuinely poor.

“Do you think Greece might declare default?”

“It will.”

I answered Grant’s question with confidence.

“So, we should build positions like we did during the last global financial crisis?”

“Right. The best approach would be to take a short position on Greek government and bank bonds and similarly short the European stock market.”

Grant picked up where I left off.

“After establishing those positions, we’ll liquidate them when the ECB and IMF intervene, and then bet on the rebound.”

Having worked together before,

we were on the same page.

“How large should the position be?”

After a moment’s thought, I concluded,

“Let’s start with $1 billion. We’ll gradually increase it based on the situation.”

While I knew the general direction,

I didn’t remember the specifics, like the timing.

So, a conservative approach was necessary.

Making money is important,

but not losing it is even more crucial.

“We’ll prepare accordingly.”

Grant replied,

and I added one last comment.

“Greece’s issue won’t end with Greece; it will shake the entire Eurozone. So, we need to seize the opportunity when the clock of the European financial market stops and exploit that gap!”

One Month Later

Dojin Capital Executive Office

“Sir, it’s started.”

Lisa rushed in and pulled up the situation board.

The monitor displayed the Athens Stock Exchange (ASE) index in red,

plunging like a waterfall.

“What about the bond market?”

“Last month, Greece’s 10-year bond yield was in the early 4% range, but today it has surpassed 7%.”

A surging bond yield meant a crashing bond price.

Fear that Greek bonds could become worthless was spreading rapidly.

“The currency situation is the same.”

Unlike the slightly excited Lisa,

Grant calmly continued his explanation.

“The EUR/USD exchange rate has plummeted from the 1.60 range to the early 1.30s.”

Not only Greece but other countries were also in trouble.

“Spanish and Italian bank stocks seem to be crashing too?”

“Not as badly as Greece, but neighboring countries, especially bank stocks, are falling rapidly.”

The monitor switched to news coverage.

[Greek Public Sector General Strike Begins]

[Police-Protestor Clashes Intensify]

[Greek Government to Officially Request Bailout from ECB and IMF]

Chaos had erupted in Greece.

Inability to pay public sector wages, civil servant layoffs, pension cuts, and abolition of various subsidies.

Severe austerity measures were being implemented to prevent fiscal deficits,

but the consequences were brutal.

“It’s unfortunate, but we can’t miss this opportunity.”

I looked up at Grant and Lisa.

“Let’s use all remaining funds to expand our short positions now!”