Chair of the Senate Banking Committee Brown focuses on banks’ ties to Archegos

Senator Sherrod Brown, chair of the powerful Senate Banking Committee, focuses on three banking giants’ ties to Archegos Capital after the fund’s recent losses bleach the market.

In letters to leaders of Goldman Sachs, Nomura Holding America and Credit Suisse, the Ohio Democrat states that he is looking for details about their relationship with Archegos. The letters, first reviewed by CNBC, are dated Wednesday. CNBC received a letter from Brown to Morgan Stanley after this story was published.

Archegos, a family investment firm run by former Tiger Management analyst Bill Hwang, caused a sell-off in stocks like Discovery and ViacomCBS last month when it was forced to liquidate its positions in those companies.

Several banks were caught with the fallout. Credit Suisse and Nomura were two prime brokers that suffered significant losses. Two executives at Credit Suisse announced they would be stepping down.

Goldman and Morgan Stanley, on the other hand, managed to sell most of the shares related to Archegos’ margin calls and avoid any loss.

Brown sent letters to Goldman CEO David Solomon, Crystal Lalime, General Counsel of Credit Suisse, and Yo Akatsuka, CEO of Nomura Holding America. The letter to Morgan Stanley was addressed to their CEO James Gorman.

The letters are Congress’ first response pointing to a possible investigation and go beyond initial statements condemning only the chaos in the marketplace, such as Brown’s last week. At the time, Brown called on regulators to take a closer look at Archegos.

The committee has jurisdiction over the world’s largest banks and regularly consults with the heads of the Securities and Exchange Commission. The SEC has reportedly opened a preliminary investigation into Hwang and his recent transactions.

Senator Elizabeth Warren, D-Mass., Who is also a member of the Senate Banking Committee, recently told CNBC that “the Archegos collapse had all the makings of a dangerous situation.”

Brown’s letters to the three bank officials attempt to investigate the links between the financial institutions and Archegos.

The details and ultimate consequence of Archegos ‘failure remain to be seen, but the massive transactions and losses raise several questions about Goldman Sachs’ relationship with Archegos and the treatment of so-called ‘family offices’, Mr. Hwang and the transactions mentioned in news reports, ”says the letter to Solomon.

Brown will then ask executives to “provide an overview of the customer’s Know Your Customer (KYC) assessment and onboarding process for family offices, including any consideration of whether the family office is subject to legal registration or reporting. “

On Archegos, Brown requests “the client’s onboarding process, including any regulatory or risk committee approval, for Archegos, indicating when it became a client” along with requests to the banks for “the broker-dealer, bank, and identify other entities directly or indirectly involved in transactions with Archegos that participated in the margin call and the resulting inventory sales. “

Brown is calling on Goldman, Credit Suisse, Morgan Stanley and Nomura to respond to his letters by April 22.