The Overly Competent Junior Employee

In the modern economic system, cycles have always existed. Whether in real estate or stocks, periods of prosperity were followed by recessions, and after the recession, prosperity would return.

During economic upswings, known as boom periods, no one thinks it strange to borrow money for investments. It’s a time when the more you borrow, the more your income increases.

Bonds, stocks, and real estate all show strength, and all forms of income, including financial income, increase.

People intoxicated by this atmosphere begin to create various problems without seeing the ‘essence’ amidst the growing bubble.

Things that were invisible during the upswing start to appear one by one when the recession arrives.

“Fitch has downgraded CS’s credit rating.”

The warning sound that echoed throughout the office was a breaking news alert on the trading system. The worst news that Korea could face at the start of the day had arrived from the United States.

At Dokyung’s words, Hong Se-jun looked at the monitor screen with a bewildered expression.

“Why would Fitch…”

Fitch was one of the world’s three major credit rating agencies.

It was a credit rating institution that assigned credit ratings to countries and companies worldwide, and the credit ratings they announced were extremely important.

These credit ratings signified the likelihood of getting back the principal and interest when lending money or investing in these entities.

“It’s BBB.”

CS was an investment bank operating globally.

With its headquarters in Switzerland, a financial powerhouse, they were Europe’s top investment bank.

Naturally, their influence within Europe was enormous, and furthermore, the whole world was affected by the products they invested in and the derivatives they created.

“It hasn’t even been three months since it was downgraded to BBB+.”

Dokyung nodded at Hong Se-jun’s question.

“That’s correct.”

The investment grade announced by Fitch had a total of 12 levels.

It ranged from AAA (very high credit quality) to D. From the fifth level, BB, it was considered a speculative grade.

CS’s newly announced credit rating of BBB was just one level above the speculative grade.

Considering that most investment banks’ credit ratings are in the AAA to A range, this was a very dangerous rating.

“For now…”

Hong Se-jun took a deep breath as if trying to calm his bewilderment.

“I think we need to investigate the data on CS until the market closes this afternoon. It’s not the time to talk about the UK.”

Dokyung nodded at Hong Se-jun’s words.

At a time when the problems of UK pension funds were hitting the world, when everyone was sensing uneasiness, if risks emerged for a giant investment bank like CS, global markets could crash.

They needed to prepare.

“Dokyung-ssi, please first investigate why this downgrade happened, starting from the past. I’ll investigate what kind of ripple effect this incident might have.”

“Yes, I understand.”

“Let’s begin.”

At Hong Se-jun’s words, Dokyung quickly cleared away what he was doing and started preparing new materials.

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“It started with the large American community, Reddit.”

That afternoon, after all markets had closed, Dokyung was reporting to Part Leader Seo Yong-won and Assistant Manager Hong Se-jun in the Part Leader’s office.

“Reddit?”

“Yes. A post was uploaded to Reddit’s WallStreetBets, the largest individual investor community in the U.S. The post is here…”

Dokyung showed the community post that had started this incident.

“It seems to be a CS employee.”

The material Dokyung showed contained the contents of a memo sent by CS executives to internal employees.

“While we can’t confirm the identity of the original poster, this content seems to be true.”

CS executives had sent a memo to all employees urging them to resolve the financial soundness crisis.

“If it had been normal, or at least if it had been another investment bank, it would have been evaluated as a correct management decision in difficult times. However…”

“If it’s CS, there’s a bit of a problem, right?”

Dokyung and Hong Se-jun nodded at Seo Yong-won’s words.

CS had been one of the most problematic investment banks in recent years.

They were being criticized for thinking only about money.

“That’s right. Money laundering from drug sales, concealment of criminal proceeds… Recently, along with moral hazard, large-scale losses in their investment products have been causing various problems.”

Seo Yong-won and Hong Se-jun nodded at Dokyung’s words.

CS’s stock price had fallen more than 60% compared to a year ago.

“The biggest problem is that this memo was perceived negatively by investors.”

That was the crux of this incident.

In fact, if executives of an ordinary investment bank had sent down such a memo, people would have thought it was no big deal.

It would have been seen as just a constructive mindset of reorganizing their investments because the global economy was in danger.

“Given CS’s past behavior, it seems natural.”

As Seo Yong-won responded, Dokyung sighed.

“It’s a narrative problem.”

The word “narrative” could be translated into Korean as something like “story” or “account.”

In short, it meant that a kind of “narrative” moves the financial market.

No matter how stable CS’s assets might be according to data, if a “negative narrative” about CS circulated in the financial market, it meant that the market situation would only lead to a crash.

“A negative narrative about CS is being created, and this won’t end with just CS’s problem. It’s because there’s a precedent.”

Silence suddenly fell in the Part Leader’s office at Dokyung’s words.

The U.S. subprime mortgage crisis, commonly called the “Lehman crisis,” was also like that.

The derivatives in the financial market were intertwined among various financial institutions.

During the 2008 Lehman crisis, it started with problems in the derivatives of an insurance company called AIG. This crisis then affected a bank called BofA, and finally, Lehman Brothers.

At that time in the U.S., AIG and BofA were bailed out through government funds, but Lehman Brothers was not saved.

The first two companies were too big to just let die.

The relatively smaller Lehman Brothers took the fall and went bankrupt, and the bankruptcy of this “small” company, Lehman Brothers, caused the whole world to suffer.

“If a bank of CS’s caliber collapses…”

Seo Yong-won trailed off, as if he didn’t want to imagine what would happen next.

“It will spread to European banks. Then it will be Wall Street in the U.S.”

However, Dokyung thought they needed to assume the worst for the current situation.

“Of course, I don’t think it will actually turn out like this. But if we have to invest assuming the worst, I think it’s worth discussing.”

At Dokyung’s words, Seo Yong-won let out a deep sigh and looked at Dokyung and Hong Se-jun.

“Today was tough in the domestic market too.”

With rumors of CS’s bankruptcy crisis reaching the domestic stock market before it opened, the domestic market faced a tremendous crash.

There was a strong movement to liquidate risky assets.

“Soon, when the European and U.S. markets open…”

“It will get tougher.”

“I suppose so. Then what’s the macro team’s opinion?”

At Seo Yong-won’s question, Hong Se-jun cautiously opened his mouth.

“We can’t withdraw the assets currently invested. We’ve already suffered big losses.”

The portfolios of clients currently managed by Wrap Account Team 1 were heavily scarred.

An economic crisis had arrived due to incidents and accidents that seemed to occur every time they woke up.

“I suppose so. The talk of UK bonds came up under the judgment that hedging measures were needed.”

What’s already lost can’t be helped. Then, they needed to find new products to somewhat recover the losses.

“We think the hedging measure should be cash.”

At Hong Se-jun’s words, Seo Yong-won furrowed his brow.

To hold cash now…

“More precisely, we should hold cash in dollars.”

As Hong Se-jun added, Seo Yong-won fell into thought for a moment, and then nodded as if he understood everything.

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“The average portfolio return is -18%. This is for clients with a high proportion in the domestic market… Those with a high proportion in overseas markets are suffering losses of up to -35% or more.”

Two days later, a meeting of Wrap Account Team 1 was in progress, and the atmosphere in the conference room was more gloomy than ever.

Recently, it had become increasingly difficult to explain portfolio returns to clients in this market.

“We thought the UK-originated crisis was ending, but…”

The manager of the trading team trailed off.

Just as the market was normalizing due to the Bank of England’s intervention, concerns about a financial crisis originating from CS once again infiltrated the market with unease.

UK government bonds, whose yields had fallen for just one day, were seeing rising yields again, and there was no sign of improvement in any part of the market.

“The problem is with clients who have a cash holding ratio of over 40%. This is because a situation is emerging where there’s nowhere to invest this cash, making it worse than putting it in a savings account.”

While inflation was rising daily, if one just held onto cash, their cash remained the same against rising inflation.

It was literally a situation where holding onto cash was becoming trash.

“What’s the dollar exchange rate today?”

Seo Yong-won looked at Dokyung and asked.

“As of yesterday, the won-dollar exchange rate was 1,390 won per dollar.”

“We’ll hold all the cash of clients with high cash ratios in dollars.”

When such words came out of Seo Yong-won’s mouth, the trading team manager looked at him in surprise.

“It’s hard to say we’ve hit bottom to invest anywhere right now. There’s a limit to holding cash, so we’ll hold this cash in dollars.”

“Indefinitely?”

“No. Until we see the bottom. I don’t know for sure, but it will break through the 1,400 won level and threaten the 1,500 won level. It seems good as a hedging measure too.”

At Seo Yong-won’s words, the trading team manager, who had been pondering for a moment, nodded.

“We’ll do that.”

“It will be tough for everyone for a while, but I’d like everyone to approach this with the feeling of maintaining the status quo until we see the bottom that everyone is thinking of.”

“Yes, understood.”

“Well then, let’s all work hard.”

As Part Leader Seo Yong-won stood up and left the conference room, Assistant Manager Park Hyun-jae followed behind him.

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“What is this?”

“It seems my work here is done.”

“What did you say?”

In the Part Leader’s office, Seo Yong-won furrowed his brow as he looked at the envelope Park Hyun-jae, who had followed him in, handed over.

“Is it because of the UK issue? That was because I disregarded you…”

“No. I’ve felt for a while that this isn’t a good fit for me.”

“…”

“I want to make more money. I’ve just recently realized that’s impossible in wrap accounts.”

Wrap accounts managing client assets could never make risky investments. Naturally, the performance bonuses earned were less compared to hedge funds or private equity funds.

“I’m thinking of leaving the country.”

“Do you have somewhere to go?”

“Yes. Fortunately, I got another call from a place that had contacted me before. I think I’ll be going to Singapore.”

At Park Hyun-jae’s words, which seemed to indicate he had already decided his future, Seo Yong-won thought he shouldn’t try to hold him back. Perhaps, as Park Hyun-jae said, he wasn’t suited for this wrap account team.

“I understand. The timing…”

“I’ll leave today.”

“If you leave so suddenly, the company’s position…”

“I’m sorry. My heart has already left.”

Looking at Park Hyun-jae, who remained selfish to the end, Seo Yong-won couldn’t help but laugh bitterly.

“Fine. However, wherever you go in the future, if you maintain this attitude, you’ll be treated as an outsider, not a true team member.”

“I’ll take your advice to heart. I’ll take my leave now.”

Watching Park Hyun-jae’s retreating figure as he bowed and left, Seo Yong-won felt a mix of emotions.

He could only hope that his warning-laced advice would sink in.

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“Looks like choosing dollars was a good decision.”

Dokyung nodded at Hong Se-jun’s words. Korea couldn’t escape the global King Dollar atmosphere.

As soon as the market opened this morning, clients started investing their held cash in dollars, and as soon as the dollar market opened, the exchange rate rose sharply by more than 8 won.

“Assistant Manager Park, hey! Park Hyun-jae!”

At that moment, everyone’s attention turned to the commotion echoing through the office.

There, the trading team manager was shouting at Assistant Manager Park Hyun-jae, who was walking towards the office entrance as if he couldn’t hear.

“Let’s talk!”

Ignoring the manager following him, Park Hyun-jae stopped at one spot in the office and made eye contact with Dokyung, who was watching him.

Dokyung didn’t avoid Park Hyun-jae’s gaze.

Park Hyun-jae, holding a large box that seemed to contain his belongings, looked at Dokyung for a moment before moving on.

“Shall we get back to work?”

After watching that scene for a while, Dokyung nodded at Hong Se-jun’s words and turned to look at the monitor.

The end of the glorious era of liquidity that didn’t need explanation was arriving along with the departure of many people.