The richest person in Chinese entertainment

Chapter 518: Compensation Plan, Conflict Transfer, Continue to Pull
“Leon, you should know that we can’t possibly pay you such a high amount.”

John Michael waited for a long time but there was no response from Zhang Chen.

He could only speak amidst the crazy eye contact among a group of bank presidents.

There is no way around it. If the MBS (mortgage-backed securities) and CDO (collateralized debt obligations) in their hands continue to explode, they simply will not have enough funds to pay for it.

The face value of the CDS held by Zhang Chen and his team exceeds 9000 billion US dollars!

Morgan's total bank assets do exceed one trillion US dollars, but that doesn't mean they have that much cash reserves.

Even if there is so much cash flow, it is impossible to compensate Zhang Chen and others.

This is simply not realistic.

We have just finished the first quarter of 07.

According to the leading three banks.

Goldman Sachs' cash reserves are about $690 billion.

This includes liquid assets such as cash and cash equivalents, short-term investments, etc.

Citigroup's cash reserves are about $420 billion.

Although the net profit for the quarter reached US$51.4 billion, it was higher than Goldman Sachs' US$31.3 billion.

But Citigroup's CDO (collateralized debt obligation) exposure reached $430 billion.

This is mainly because Citi is a major issuer of mortgage-backed securitization (MBS) and collateralized debt obligations (COD).

They packaged subprime loans into highly rated securities (such as ABSCDOs), transferring the risk to other areas for high fees.

I didn’t make a ton of money in the first two years, but I definitely reaped the benefits.

Zhang Chen’s CDS is mainly used to insure these asset packages.

As long as the securities they packaged default, Zhang Chen can get compensation from the institution that undertakes Zhang Chen's CDS business.

Citigroup, Goldman Sachs and Morgan have all taken on a lot of projects.

Among them, Citi simply believed that Zhang Chen was here to give them money.

They dared to package these subprime loans, so naturally they did not believe that these loans would have the risk of default.

This brings us back to the real estate situation in the United States at the time.

Can’t pay back the money? Then the buyer’s house will be auctioned off, and the bank will still make no loss.

That was the market situation at the time.

But now that widespread defaults have occurred, housing transaction volume in the second-hand market has surged.

In this situation, if the house prices in the second-hand market cannot be sustained, it will trigger a series of systemic crises.

It is also the main "thunder point" of this crisis.

Morgan's cash reserves are slightly better than the previous two, at about $550 billion.

However, the net profit for the quarter was only US$25.7 billion, a year-on-year decline of 17 percentage points.

Among them, holdings of residential mortgage-backed securities (RMBS) reached US$260 billion.

But this is the situation in the first quarter, which is the first three months of 07.

After Zhang Chen's "La La Land" was released, many moviegoers withdrew their savings from the bank and plunged into this storm.

The cash reserves of these three banks are definitely not as abundant as disclosed in their financial reports.

According to conservative estimates, each company will have to reduce its production by more than 30%.

Among these three, Goldman Sachs is smarter.

I learned about what Zhang Chen was doing through some channels very early on and secretly hedged the risks.

It was also the first bank to purchase CG funds from William.

However, since Goldman Sachs is the main underwriter of CDS for Zhang Chen and others, although they have hedged the risks, the future situation will not be better than that of Citigroup and Morgan, but will be more dangerous.

Originally, Goldman Sachs should have been the only Wall Street giant to make a profit during the tape crisis.

But due to Zhang Chen's intervention, they, like other banks, fell into a crisis of high compensation.

Follow the original trajectory.

Due to insufficient cash reserves and toxic off-balance sheet assets, Citigroup accepted a $08 billion bailout from the U.S. government in 450.

Morgan's cash reserves failed to offset trading losses, so it transformed into a bank holding company in 08 to survive.

These three leading banks in the United States have all suffered such a fate, not to mention the other thirty or so smaller banks.

They have a lot of MBS and CDO.

These things are like hot potatoes, and no one dares to take over when the price plummets.

Now Zhang Chen and others need to pay for the CDS they customized from them.

It can be said that while their assets are shrinking, they also have to pay the insurance for Zhang Chen and others because of the shrinking assets.

It can be said that it is blocked at both ends.

The value of the CDO and MBS they held shrank significantly because the two movies "La La Land" and "The Pursuit of Happyness" lifted the veil on the U.S. real estate market.

The global market has seen the filth behind the prosperity of this asset, and no one dares to take over this asset that has begun to rot.

These banks have no way to deal with the global pessimism and bearishness.

But on the other hand, Zhang Chen and his team do not need to consider the attitudes of billions of people around the world when making their CDS compensation payments.

They only need to deal with the CDS holders headed by Zhang Chen.

This is the main purpose of the presidents of more than 30 banks coming to China.

As long as Zhang Chen and the others are willing to give in, at least they can be guaranteed that when their assets shrink, they will not have to pay "compensation" that is more terrifying than the shrinkage of their assets.

Although their ending will not be good because of the plummeting assets.

But as long as Zhang Chen and others can be stabilized, at least Ma En can have a chance to catch his breath.

As for the final outcome, it all depends on God.

Now, they also looked at Zhang Chen and others who looked relaxed on the opposite side with eyes as if they were looking at God.

As long as Zhang Chen agrees, it is not impossible for them to worship Zhang Chen and others as gods.

"Mr. Mike, doing business requires integrity." Zhang Chen knocked on the table to bring the others back to their senses. "If you don't even have the most basic integrity, how can you make your depositors believe that their money is still theirs?"

This sentence made John Mike and the others' faces turn pale again.

Banking is one of the industries that most needs the word "integrity" among all industries.

If they lose the trust of depositors, their business will definitely suffer the most serious blow.

“Leon, you also need to know our difficulties.”

"Mr. Mike, you were not like this when you accepted my $24 billion premium." Zhang Chen supported the table with one hand, leaned forward and stared into the other person's eyes, "When I paid $3.2 million in premiums every year, I didn't default on it, right?"

"This" John Michael was speechless.

He actually hoped that Zhang Chen had defaulted on the insurance premiums, so that they would have a reason not to pay.

But Zhang Chen seemed to understand the insurance industry in the United States.

They have already done research with the world's top lawyers.

They simply couldn't find any loopholes that could allow them to exploit when the contract was signed.

If you want to blame someone, blame them for being greedy for Zhang Chen’s $24 billion and the tens of millions of insurance premiums for each company every year.

Although they studied the contracts carefully, they never seriously considered the consequences they would have to bear if the MBS and CDO defaulted.

Because this seems to them to be something that is completely impossible.

“Leon, you also know that our current cash reserves can’t afford to pay your insurance.”

John Michael was like a broken jar, he closed his eyes and started to act like a rogue.

"The combined cash reserves of our companies are only over 100 billion US dollars, and this is still included in some assets that can be cashed out in the short term." John Michael gritted his teeth and said, "Even if you ask us to pay, we can't pay."

"Of course I know you don't have enough cash." Zhang Chen curled his lips.

He already knew a lot about the situations of these families through William and his own impressions.

What's more, among these companies, they have a lot of their own deposits and other assets.

Although this amount of money is not much in each bank.

But these thirty banks added together are still a lot.

If all these banks go bankrupt, his money will be in trouble too.

"When we came here, we made a compensation plan. Take a look."

Seeing that Zhang Chen showed signs of giving in, John Mike quickly took out the things he had prepared long ago from his bag.

But Zhang Chen didn't even look at it and returned it.

John Mike looked at the returned compensation documents in astonishment and looked at Zhang Chen in confusion.

Zhang Chen just smiled and raised his chin towards his briefcase: "I want the one that's most beneficial to me."

In this kind of business negotiation, Zhang Chen didn't believe that these people wouldn't come up with some "Plan B".

He has worked his way up through thick and thin.

During negotiations, we are already familiar with coming up with solutions based on the circumstances.

Although, he never used it in his life.

But it doesn't stop him from understanding.

He had experienced this many times when he was negotiating with the two founders of Google, Apple's Steve Jobs, as well as Warner, Disney and others.

"I" John Mike turned pale and subconsciously covered his briefcase with his hand.

But under Zhang Chen's serious expression, he still lost.

After sighing softly, John Mike looked at the other bankers.

Finally, under the urging of Citigroup President Chuck Prince, he reopened the briefcase.

Citigroup is the most anxious bank now, because it holds the largest amount of CDO and MBS among all banks.

So among such a large group of bank presidents, there is someone who can keep things stable.

But there are always people who are in dire straits and want to get ashore quickly to survive.

"Are you sure this is the highest sincerity you can offer?"

Zhang Chen picked up the thick stack of documents handed to him by the other party but did not open it.

Instead, he held the document and looked at the thirty or so people opposite him.

"Yes!" John Mike and others looked as ugly as if they had eaten a dead fly.

Zhang Chen looked at the thirty or so "dead pig faces" opposite him, chuckled, and then looked down.

Robert Egger and others from the Hollywood studio did not say a word during the whole process, and they all followed Zhang Chen's lead.

But after seeing those people on the opposite side, whom they rarely saw, suffer such a setback, they felt as refreshed as if they had drunk a glass of iced soda in the middle of summer.

Normally, after their studio decides on a film project, they will take the project proposal to these banks for loans.

Don't think that all production studios will complete the filming of all films by themselves like Zhang Chen does.

For Hollywood studios that produce several, dozens, or even dozens of films a year.

This kind of cash investment of billions of dollars a year is too huge.

Only by packaging projects and borrowing from banks can major film studios obtain funding.

Of course, there is a difference between China and the United States.

But the funding for Hollywood movies in the United States generally comes from banks.

It is also a way to transfer risks.

The movie makes money and gives a few percentage points of the profit to the bank.

If the movie loses money, the worst that can happen is that all the profits from the movie will go to the bank.

But banks won't be that stupid.

They will also find professionals to inspect the project.

For example, the movie copyright of "Harry Potter" held by Zhang Chen is definitely the favorite project of these banks.

As long as you take this series of movies to the bank for financing, you will definitely get the best interest rate.

But since this is an obviously profitable project, there is naturally no need for Zhang Chen and Warner to share the profits.

It's also a delicate balance.

Hollywood keeps the most profitable projects in its hands, preventing banks from making big money and making them envious.

On the other hand, when Hollywood wants to finance other projects, it faces all kinds of difficulties because it cannot make big money.

Although there is no huge grudge between the two sides, their relationship is definitely not harmonious.

But generally speaking, Hollywood studios are the ones seeking investment and are naturally at a disadvantage.

But what Zhang Chen led them to do this time really made them feel better.

Let you make things difficult for us at ordinary times!
Robert Egger and others cursed in their hearts.

At the same time, he did not forget to give Zhang Chen a thumbs up in his heart.

Leon is such a brother!
The good thing is that you really think about them.

It would be better if there were no such thing as "Tao Piaopiao" that prevents them from making money from their movies.

When Robert Egger and others were looking at the "wonderful" expressions of the thirty or so bank presidents opposite them.

Zhang Chen was also looking at the document handed over by John Michael word by word.

This thick stack of documents can be summarized as follows:
1. Full cash payment replaced by "cash compensation + asset compensation"

Accept 20%-30% cash compensation from the seller.

The reputation portion is converted into the right to share in future profits from the seller's core assets (such as real estate, intellectual property, etc.).

2. Extension and income linkage agreement

The compensation obligation will be postponed for 8-15 years, and the agreed amount is "compensation amount + floating interest", which is roughly LIBOR (London Interbank Offered Rate) + 3%
LIBOR is the interest rate that large international banks are willing to charge when they lend money to other large international banks.

It is the interest rate paid by commercial banks in the London interbank market for U.S. dollars held in non-U.S. banks.

LIBOR is often used as a benchmark for commercial loans, mortgages, and debt issuance. At the same time, the interest rate of floating-rate long-term loans is also determined based on LIBOR. LIBOR is also a reference rate for many contracts.

That is to say, the interest is calculated based on the floating interest + 3%.

This was also a clause they had to bring out to get Zhang Chen and others to agree to.

After all, this money, in the hands of people like them, can create wealth that is definitely higher than the LIBOR interest rate.

3. Joint investment + interest binding
Zhang Chen and others signed contracts with more than 30 banks to establish box entities.

Jointly invest in undervalued assets in crisis (such as distressed real estate and bankrupt companies), with the seller using CDO payment rights as capital contribution and the seller (bank) providing operating resources.

The profits are distributed as follows: 60% to the buyer and 40% to the seller.

This one is considered to be the unique strength of each bank.

For those who work in banks, investment is their best skill.

If Zhang Chen and others agree, then these investment entities will definitely be the "hens that lay golden eggs" in the future.

If calculated based on the CDS's general final payout of 60% of its face value, that would be US$5400 billion.

In all the above options, more than three dozen banks agreed to put up about $1080 billion to $1600 billion in cash.

The other assets are converted using part of their core assets.

The second and third points need further discussion.

It depends on how much "compensation" Zhang Chen and his team are willing to invest to establish a "joint venture entity" with various banks to make investment profits.

The remaining "compensation" is calculated based on interest at an annual rate of 3% higher than LIBOR.

At the same time, the money has to be repaid over more than 8 years.

"Leon, how?!"

It took Zhang Chen a full hour to finish reading all the content.

He doesn't need to look at the specific terms and details.

Because that's the job of his legal department.

He just needs to see how much benefit his side can get.

But even just looking at these contents, the series of items such as "asset list" and "investment direction plan" listed by the other party made Zhang Chen dizzy.

To be honest, Zhang Chen doesn't quite understand the specific implementation plans for these two.

He could only roughly estimate how much the other party offered.

But not understanding it did not stop him from using the "traditional skills" of the Chinese when doing business.

"Mr. Mike." Zhang Chen shook his head with some regret, "I don't think I see your sincerity."

In an instant, John Michael's face turned pale.

This is the best solution they can come up with.

Not to mention other things, asking these thirty-odd banks to take out hundreds of billions of dollars in cash has already caused them serious damage and even put them on the brink of bankruptcy.

Not satisfied with this?
"Leon." John Michael gritted his teeth and said word by word, "You don't want to get nothing, do you?"

Faced with the other party's almost threatening words, Zhang Chen grinned.

"Mr. Mike, I heard." Zhang Chen narrowed his eyes and looked at John Mike, "There is a comic book called "The Battle between the Donkey and the Elephant" in the Pretty Country?"

As soon as he finished speaking, the faces of the thirty or so people opposite him darkened.

That look was uglier than if his parents had died.

The conflict is transferred.

This was one of the plans Zhang Chen had thought of a long time ago.

What should I do if I am afraid that the other party will not pay me back?
Sell at a discount to these banks' rivals.

He believed that those rough guys with guns would be happy to go to his house with guns to collect debts.

Zhang Chen just doesn’t want the money he earns to shrink significantly.

At the same time, introducing additional capital may easily lead to unexpected complications and unexpected changes.

But this did not prevent him from using this clause to force John Michael and others to make concessions.

The capital of the United States can be roughly divided into two factions.

One side is the "donkeys" led by Wall Street.

On one side is the "elephant" headed by the military-industrial complex.

The annual "donkey-elephant battle" is a struggle between these two sides.

Now that the 08 presidential election is approaching, it would be great if Zhang Chen could give us such a "big gift".

The "elephants" will definitely laugh their heads off.

"Leon." John Michael whispered to the person behind him for a while, and said dejectedly, "Let's talk more. Tell me what you think."

He also didn't expect that Zhang Chen would come up with such a vicious plan.

This is a calculation that shows they have ideas about the position of the Supreme Leader in 08.

The candidates were already prepared.

This is also the one they are most confident in.

Nothing can go wrong at this critical juncture.

This concerns whether they can make more money around the world in the next 10 years.

(End of this chapter)