A $50 million margin call? I'll short Wall Street.

What about the remaining 20%?

"Citibank and AIG."

Isabella stopped writing.

She looked up at Lu Ze, her brows furrowing.

"Citibank?"

Her confusion was obvious.

Just two minutes ago, Lu Ze rejected her suggestion to "buy CDS from Citibank".

The reason given is that Citigroup's balance sheet was in a state of disrepair, similar to that of Lehman Brothers.

Now he's put Citibank back on the opposing team's list?

"You just said Citigroup's balance sheet is a mess—"

"I know what I said," Lu Ze interrupted her, but his tone was not harsh.

He stood up and walked to the floor-to-ceiling window. The early summer sun illuminated the Manhattan skyline, and the glass curtain walls of the buildings across the street reflected a blinding white light.

"Citibank and Merrill Lynch are not the same."

He said this with his back to Isabella.

"Merrill Lynch is a pure investment bank. If it runs into trouble, the government can have JPMorgan Chase or Bank of America take it over, like Bear Stearns did. It's painful, but manageable."

"But Citigroup is not an investment bank. Citigroup is one of the world's largest integrated banking groups. It has tens of millions of retail depositors, operations in more than 100 countries, and its clearing network is connected to the arteries of the global trading system."

He turned around and looked at Isabella.

"If Citibank collapses, it's not just a matter of a few buildings on Wall Street closing down. It's a matter of the global payment system collapsing."

Isabella's pupils contracted slightly. She understood.

"You mean... Citibank is another 'too big to fail' company, like AIG."

"right."

Lu Ze sat back down in his chair.

"Citigroup's balance sheet is truly rotten. Its Special Enterprises (SIVs) hold tens of billions of dollars in toxic assets. Its capital adequacy ratio will most likely fall below regulatory limits as the crisis deepens."

"But precisely because of this—precisely because it has rotted to the point of threatening the entire global financial system—governments dare not let it die."

"Citigroup will not be allowed to default."

"Just like AIG won't be allowed to default."

Isabella looked at him and went through the logic in her mind.

Same logic. Same reasoning.

AIG can't afford to pay, but the government can. The same goes for Citibank.

As long as the United States of America exists, Citigroup's CDS payment obligations are backed by an implicit, world-leading sovereign credit facility.

"Citibank and AIG together will take 20%."

Lu Ze said, "Their quotes are the cheapest in the entire market because everyone thinks they're about to go bankrupt. Who would buy insurance from a company that's about to die?"

"But we know they won't die."

"So we bought insurance with the lowest possible premium, which was implicitly guaranteed by the U.S. government."

"This is the 20% with the best value for money in the entire package."

Isabella updated the share allocation on the tablet:

Goldman Sachs and Morgan Stanley: Combined 40%

Deutsche Bank, Barclays, UBS, RBS, BNP: Total 40%

Citigroup and AIG: 20% combined

Nine channels.

She stared at the table for two seconds, then looked up.

"Nine. This is likely the most counterparty channels ever used by a hedge fund in a single CDS transaction in Wall Street history."

"So no one will suspect that we are targeting a specific institution."

Lu Ze said, "A person who bought insurance from nine investment banks looks more like a paranoid person who distrusts the entire financial system than a killer aiming a sniper rifle at Lehman Brothers."

Isabella added a title at the top of her notes: "Macro Systemic Risk Hedging Solution - Nine-Channel Architecture".

Then she looked at Lu Ze.

"What about the terms?"

Lu Ze's expression became even more serious on this issue.

"Goldman Sachs almost defaulted on the 700 million from Bear Stearns. This time, the size of their short position on Lehman Brothers will be ten times that of the last one. Once Lehman Brothers collapses, Goldman Sachs, JPMorgan Chase, and Deutsche Bank will all face billions of dollars in terrifying payouts. To protect themselves, their legal departments will absolutely stop at nothing to delay, renege, or even apply for court freezes."

"Therefore, when you represent Farstar to sign the ISDA master agreement with these nine companies, you must insist on holding firm on these two supplementary clauses."

Lu Ze spoke slowly and deliberately:

"Daily market monitoring and cash pledging."

Isabella's pupils contracted slightly.

As a top student in financial engineering, she knew all too well what those two words together meant.

Simply put, it's like two people betting against each other; the normal rule is to settle the score after the result is announced.

But Lu Ze's current requirement is that as long as Lehman's CDS spread widens by one basis point, the counterparty must deposit this unrealized profit into Yuanxing Capital's pledged account in real money before the market closes at 5 p.m. every day.

"A unilateral additional insurance clause should also be added."

Lu Ze continued, "If the counterparty's credit rating is downgraded, we have the right to demand additional cash collateral at any time. Otherwise, it will trigger early termination and full compensation."

"Boss..."

Isabella's voice was a little strained.

"These two clauses combined are like holding a knife to the throat of investment banks, cutting their arteries every day. The legal departments of Goldman Sachs and Morgan Stanley will absolutely consider these two clauses unacceptable and will flip the table immediately."

She paused for a moment, swiped her finger across the tablet a few times, and brought up a comparison of the risk control policies of different banks.

"However, the situation might be different with European banks."

Her speech slowed down, as if she were performing a real-time simulation.

"Deutsche Bank and Barclays have consistently been at a disadvantage in the battle for market share in the United States. They are extremely eager to establish deep partnerships with 'newcomers' like Farstar. To secure this business, their terms will be far more flexible than Goldman Sachs'."

As for RBS and BNP—

A subtle, almost cold smile appeared on Isabella's lips.

"Both of these companies have been shockingly slow to react to the subprime crisis so far. RBS's CEO is still publicly declaring that 'our balance sheet is rock solid.'"

BNP Paribas froze redemptions for three of its funds last summer, drawing heavy criticism from the market. However, its credit derivatives trading desk seems completely unprepared, continuing its aggressive CDS sales to earn premiums.

"They will take our orders."

"And they'll enjoy receiving it."

As Lu Ze listened to Isabella's analysis, a slight smile appeared on his lips.

"That's settled then," he said. "Goldman Sachs and Morgan Stanley won't budge on their terms. Daily mark-to-market, cash collateral, and a 10 basis point trigger threshold. If they don't sign, let them watch Deutsche Bank devour their share."

He paused.

"The European banks..."

Isabella waited for him to say the next sentence.

"We can be more flexible."

When Lu Ze uttered those four words, his tone was extremely casual, as if he were discussing a minor technical detail.

"The trigger threshold can be set at twenty basis points. If they insist on a weekly settlement cycle instead of a daily one, that's negotiable."

Isabella paused for a moment.

She looked at Lu Ze.

In her understanding of this person, words like "flexible" and "negotiable" almost never appeared in his vocabulary when discussing key terms.

In the Bear Stearns battle, he even pushed Goldman Sachs to the brink of collapse.

Has his attitude towards European banks suddenly softened?

"Why?" she asked.

"Because the credit risk of European banks is indeed a level lower than that of Goldman Sachs and Morgan Stanley at present."

Lu Ze said, "They have smaller direct exposure to subprime mortgages and thicker capital buffers. Even if Lehman Brothers collapses, the probability of them being directly dragged down is very low. So we don't need such tight terms to protect ourselves."

He picked up the coffee cup on the table and took a sip.

"Moreover, overly restrictive terms will prolong the negotiation process. The legal teams of European banks are in Brussels and Frankfurt; the time difference, language barriers, and the European work ethic of spending three days in meetings on every single detail—if we don't budge on the terms, this ISDA framework might not be finalized even in three months."

"We don't have three months."

Isabella nodded. That explanation made perfect sense.

She marked two sets of terms and conditions in her notes:

US-based channels (Goldman Sachs, Morgan Stanley): Daily mark-to-market, cash collateral T+1, trigger threshold 10bps, unilateral margin call, jurisdiction of New York courts.

European channels (Deutsche Bank, Barclays, UBS, RBS, BNP): Mark-to-market frequency negotiable (daily or weekly), trigger threshold 20bps, T+2 cash pledging acceptable, New York court jurisdiction (London or Paris arbitration not accepted).

"Too big to fail" channels (Citibank, AIG): Terms are based on US standards, but negotiating resistance is expected to be minimal (they desperately need premium income and will agree to almost any condition).

Isabella finished organizing the form on the tablet, took one last look, and then looked up.

Nine channels. Three sets of terms and conditions. How long is it expected to take to sign all the agreements?

"For American companies and Citibank, AIG, within two weeks," Lu Ze said. "We're already familiar with their legal processes. For European companies, it'll take three to four weeks."

"Jason can't keep an eye on everything by himself."

"Have David find someone else." Lu Ze picked up the phone on the table and dialed David Rosenthal's number.

"Have David recruit several top-tier litigation lawyers for Farstar within 48 hours. These lawyers should be experts in ISDA, have extensive experience in derivatives litigation, and ideally have transatlantic experience. Ideally, they should be able to work with legal teams in New York, London, and Frankfurt simultaneously."

Lu Ze put down the phone and looked at Isabella.

"If they want to talk, then we should talk to them properly. Americans fight hard battles, Europeans fight clever battles."

Isabella stood up and tucked the tablet under her arm.

"I'll arrange it."

She walked to the door and opened it.

Then she paused.

In that conversation, a tiny detail left a faint mark on her mind—when Lu Ze said, "It's not a bad thing to establish the ISDA master agreement framework with the major European banks," there was something in his tone that she couldn't quite put her finger on.

It wasn't that they were hiding it or doing it intentionally.

It's more like someone saying something that's 100% true, but that statement also happens to have another layer of meaning that they didn't say.

She didn't know what that meaning meant.

Maybe she's just overthinking it.

Isabella shook her head, walked out, and gently closed the door behind her.

Lu Ze sat alone in his office.

Sunlight streamed in through the floor-to-ceiling windows, cutting a bright rectangular strip of light across the mahogany table.

He picked up a pen and wrote nine names on a blank sheet of paper in front of him.

Goldman Sachs. Morgan Stanley. Deutsche Bank. Barclays. UBS. RBS. BNP Paribas. Citigroup. AIG.

He looked at the nine names.

Then, very lightly, he drew a tiny circle with a pencil next to the names of the five European banks.