Credit Suisse exposure to Archegos Investments increased to over $ 20 billion
By Emily Glazer, Maureen Farrell and Margot Patrick
Credit Suisse Group AG has accumulated more than $ 20 billion in exposure to investments linked to Archegos Capital Management, but the bank struggled to monitor them before the fund was forced to liquidate many of its important positions, according to reports. people familiar with the matter.
The US family-owned investment firm’s bets on a set of stocks swelled before its March collapse, but parts of the investment bank had not fully implemented systems to keep pace with growth rapid Archegos, the sources said.
Credit Suisse Managing Director Thomas Gottstein and Chief Risk Officer Lara Warner, who recently left the bank, only became aware of the bank’s exposure to Archegos in the days leading up to the forced liquidation fund, people close to the bank said. Neither Mr Gottstein nor Ms Warner were aware that the fund was a major client before that, the people said.
A spokesperson for Credit Suisse declined to comment.
The exhibition reveals for the first time the extent of Credit Suisse’s relationship with Archegos, which came to light at the end of last month. Credit Suisse reported a loss of $ 4.7 billion, reduced its dividend and said Ms Warner, the director of its investment bank and other staff would be leaving. Credit Suisse is also facing questions from regulators in the United States and Europe about its relationship with Archegos and the end of its activities.
Archegos, an American family-owned investment firm of former Tiger Asia director Bill Hwang, took huge bets on a few stocks with money borrowed from banks. When some important positions reversed and Archegos could not respond to margin calls, it triggered one of the biggest sudden losses in Wall Street history.
Archegos spreads its bets over half a dozen banks. Others, including Nomura Holdings Inc. and Morgan Stanley, have also reported significant losses. Credit Suisse has lent Archegos more relative to its size than other lending banks and was one of the last to exit, the Wall Street Journal previously reported.
Within the bank, senior management now knows that the so-called notional exposure, or the underlying value of the assets it managed on behalf of Archegos, was over $ 20 billion, people said. close to the file.
Some within the bank who were familiar with the Archegos exposure had thought it was a fraction of the roughly $ 20 billion figure, one of those familiar with the matter said. ”
Credit Suisse failed to protect itself from its exposure to Archegos in part because it had not yet implemented a system that monitored in real time the risk that a position created for the bank when prices underlying titles were changing, people familiar with the matter said.
This system, known as dynamic margin, was not fully implemented in the division that oversaw Archegos’ investments within Credit Suisse, the people said. The bank had planned to migrate Archegos’ positions to this system in the spring, one of the people said.
Archegos has made a large portion of its investments through a derivative called a total return swap. These are contracts negotiated by Wall Street banks that allow a user to assume the profits and losses of a portfolio of stocks or other assets in exchange for fees. Through these swaps, Archegos took significant stakes in ViacomCBS Inc., Discovery Inc. and a handful of other media and technology companies, while releasing limited funds up front, borrowing primarily from Credit Suisse and other Wall Street banks.
Since the stock prices of many Archegos investments were moving rapidly, Credit Suisse could not fully monitor the bank’s risk without these systems, which are used at many other Wall Street banks, people close to them said. folder.
In the days before banks began swiftly offloading large blocks of Archegos’ holdings or holdings linked to its swaps, Credit Suisse executives argued over when and how to aggressively sell, said some people. Goldman Sachs Group Inc. and Morgan Stanley were relatively quick to move large blocks of assets, as the scale of the hedge fund’s losses became evident.
Credit Suisse is releasing its first quarter results on Thursday, when it is expected to release more details on the overall damage Archegos has caused to its finances.
The Archegos crisis came just weeks after Greensill Capital, a UK finance company deeply entangled with Credit Suisse, filed for insolvency and left the bank on the hook for losses.
Credit Suisse said its relationship with Archegos and Greensill needed “further scrutiny and examination.” He said his board formed a crisis team and hired outside help to investigate.
The investigations will also examine how the bank, having invested huge sums in risk control and oversight in recent years, allowed itself to get involved in both situations. In Greensill’s case, the bank has reviewed the relationship several times in recent years, but has continued to expand its business with the company.
Juliet Chung contributed to this article.
(END) Dow Jones News Wire
April 21, 2021 at 7:14 p.m. ET (11:14 p.m. GMT)
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