Chapter 531 The Koch Family
As early as January this year, HSBC Holdings increased the amount of provisions for subprime housing credit in the United States for the first time and issued a warning that it may significantly increase provisions.
Then on February 13, New Century Financial Corporation issued a fourth-quarter profit warning.
The next day, New Century Financial's stock fell 36%, and the subprime loan index ABX fell 5 points in response.
For the first time, the market felt the chill of subprime mortgages.
In March, HSBC Holdings announced its results and increased its provisions for subprime housing credit in the United States by an additional US$7 billion, totaling US$10.573 billion, an increase of 33.6%!
As soon as the news came out, the stock market plummeted that day, with the Hang Seng Index falling 777 points, or 4%!
On April 2, New Century Financial Corporation, the second largest subprime mortgage company in the United States, filed for bankruptcy protection.
"With the collapse of New Century Financial Corporation, the subprime loan bond market has been greatly impacted, and our profits have continued to rise..."
In fact, the Black Swan Fund’s profits from short selling New Century Financial’s stock price alone exceeded US$1.5 billion!
On March 14, New Century Financial Corporation was ordered to suspend trading. You must know that in just two months from January 11 this year to March 14, before the suspension, their stock prices have dropped from a high of US$32.06. It fell to just 67 cents.
The bankruptcy of New Century Financial Corporation was also a result of the company's displeasure in the face of nearly $15 billion in debt pressure from Wall Street.
It can be said that although New Century Financial Company has declared bankruptcy, the losses it has caused to relevant financial institutions still exist, just like the first card of a domino falling, and there will be chain reactions one after another.
In fact, the impact of the subprime mortgage crisis is gradually expanding and being transmitted.
In February this year, there were only the first signs, and it could not even be called a crisis.
At that time, in addition to the Black Swan Fund, there were also some small and medium-sized funds, including the Paulson Hedge Fund, which had already held bets and were waiting for the crisis to come...
The key is that other funds, unlike Barron's, do not know the evolution of the subprime mortgage crisis and the key timings - many of them were aware of the unhealthy conditions of the housing loan market before 2006, so It entered the market earlier than black swan funds - for example, Paulson Hedge Fund started building positions in early July last year.
What they didn't expect was that the market's reaction was so "sluggish". Until problems appeared in the subprime loan market in February, they had not yet experienced a large-scale price drop.
Therefore, many short-selling funds had to sell some of the chips they held in order to reduce their holdings, including the Paulson Hedge Fund. There is no doubt that most of the chips released were used by black swan funds. Take it.
Black Swan Fund's short-selling strategy for the subprime mortgage crisis is divided into several stages according to its transmission process.
In the initial stage, it was mainly about subprime loan claims, including short selling of CDOs and large-scale absorption of CDS, and also short selling of related subprime loan issuers...
When this stage begins to enter the harvest period, we will start to short the relevant banks and financial institutions...
After that, it is natural to short the entire stock market.
The spread of the entire subprime mortgage crisis was almost like this.
Just after New Century Financial Corporation declared bankruptcy, at this time in April, the vast majority of people in the market did not realize that this matter would cause a disaster to the entire financial system, nor did they realize that it would damage those investment banks. We just believe that there are risks in the real estate industry and related financial institutions.
After the destructive power of the subprime mortgage crisis is transmitted to the financial system, investment banks will continue to find huge losses, which will lead to the depletion of liquidity in the market, and then in the next stage, problems will occur in the stock market.
Similarly, the subprime mortgage crisis that occurred in the United States, because institutions and investors from Europe, Japan, South Korea and other countries invested in it on a large scale, also transmitted the financial crisis to these developed countries.
In these countries, it is also the destructive power transmitted from financial institutions to the stock market.
After developed countries fell into a deep crisis, in order to stabilize the market, they needed to withdraw funds and investments from other countries. As a result, those countries were also affected, and debt crises broke out in many countries.
Therefore, when Barron attended this high-end cocktail party in Los Angeles, it was not surprising that the big bosses he saw had relaxed faces and the hall was full of laughter.
"I heard that you played tricks on Rupert Murdoch in England..."
The old man who came over to talk to Barron was named Charles Koch.
Many people may not remember this name, but if you talk about the Koch Brothers or Koch Industries, then you may have heard of it.
"Slightly inaccurate, Mr. Koch. I just did some business with Mr. Murdoch."
It seemed that Charles Koch was not satisfied with Barron’s answer. He shook his head and said:
"This is just a way of saying it to save him face. We all know what's going on."
It can be seen that Charles Koch and Murdoch do not deal with each other very well.
In lists like the Forbes Rich List or the Global 500, it is rare to see the names of the Koch brothers or Koch Industries.
But this does not mean that their wealth or strength is insufficient, but because Koch Industries Group, like DS Group, is an unlisted private company and does not publish its financial statements to the outside world.
Of course, because DS Group has too many external investments, it can still roughly estimate its size through the number of shareholdings - but Barron's has injected some assets into private equity funds such as Caesars Fund and Global Industrial Investment Fund. Later, his personal wealth in the DS Group has become increasingly a mystery.
The wealth and influence of the Koch family cannot be underestimated. The Koch Industries Group controlled by them is involved in many fields such as oil and gas transportation, foreign trade, agriculture, forestry, animal husbandry, and finance, and has developed into one of the world's largest private companies.
If you were to name one of Koch Industries’ “titles,” it would be—
The world’s largest petcoke trader;
The world’s largest asphalt supplier;
The world's largest feed production group;
One of the world's largest refinery equipment manufacturers, producing various types of chemical production equipment;
One of the world's largest crude oil traders, with an annual crude oil trading volume of more than 700 million tons...
as well as--
The largest liquefied petroleum gas processing group in North America, accounting for 25% of the total North American market;
North America's largest pipeline transporter, with the longest petrochemical pipeline in North America;
The sixth largest electricity supplier in the United States, its power supply business covers all fifty states...
Last year, in 2006, Koch Industries announced operating data, with sales revenue exceeding US$100 billion that year.
In fact, the Koch family, whose family originated from Dutch immigrants, is an important part of the American Consortium. The Koch brothers are keen on politics and are very influential in the United States.
All in all, Barron has no conflicts of interest with the Koch family, so he doesn't mind establishing some friendship with them.
Now it seems that Charles Koch also has a special regard for Barron, and the two soon started chatting.
