Credit Suisse Group AG
amassed more than $ 20 billion in investments related to Archegos Capital Management, but the bank struggled to follow them before the fund was forced to liquidate many of its large holdings, according to people familiar with the case.
The American family investment firm’s bets on a collection of stocks increased in the run-up to the March collapse, but parts of the investment bank had not fully implemented the systems to keep up with Archegos’ rapid growth, the people said.
Credit Suisse CS 0.87%
Chief Executive 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 of the fund, according to people familiar with the bank. Neither Mr. Gottstein nor Ms. Warner knew the fund for that as a major client, these people said.
A spokesperson for Credit Suisse declined to comment.
The exposure first reveals the scope of Credit Suisse’s relationship with Archegos, which was unraveled late last month. Credit Suisse reported a loss of $ 4.7 billion, cut its dividend and said Ms. Warner, the head of the investment bank and other staff would be leaving. Credit Suisse is also facing questions from regulators in the US and Europe about its relationship with Archegos and settlement.
Archegos, an American investment firm owned by former Tiger Asia manager Bill Hwang, took huge bets on a few stocks with money borrowed from banks. When some large positions were reversed and Archegos couldn’t meet margin calls, it caused one of the greatest sudden losses in Wall Street history.
Archegos spread his bets over half a dozen banks. Others, including Nomura Holdings Inc.
and Morgan Stanley,
also reported large losses. Credit Suisse lent more to Archegos in relation to its size than other lending banks and was one of the last to leave the company, The Wall Street Journal previously reported.
Within the bank, top management now knows that the so-called notional exposure, or the underlying value of the assets it managed on behalf of Archegos, was more than $ 20 billion, the people familiar with the matter said.
Some within the bank who were familiar with Archegos’ exposure thought it was a fraction of the amount of about $ 20 billion, one of those familiar with the matter said.
Credit Suisse was unable to protect itself from its exposure to Archegos, in part because it had not yet established a system that would track in real time how much risk a position created for the bank as the prices of the underlying securities changed, people familiar with the case said. .
This system, known as dynamic margining, was not fully implemented in the division overseeing Archegos’ investments within Credit Suisse, the people said. The bank planned to migrate the Archegos positions to that system sometime in the spring, one of the people said.
Archegos has made a large part of its investments through a derivative, a so-called total return swap. These are contracts brokered by Wall Street banks that allow a user to take the gains and losses of a portfolio of stocks or other assets in exchange for a fee. With the help of these swaps, Archegos took large stakes in ViacomCBS Inc.,
and a handful of other media and technology companies, while providing limited resources up front, essentially borrowing from Credit Suisse and other Wall Street banks.
Because the stock prices of many of Archegos’ investments changed rapidly, Credit Suisse could not fully monitor the bank’s own risk without these systems, which are used at many other Wall Street banks, those familiar with the matter said.
In the days before banks quickly began unloading large blocks of Archegos’ holdings or holdings related to its swaps, executives within Credit Suisse argued about when and how aggressively to sell, some of the people said. Goldman Sachs Group Inc.
and Morgan Stanley were relatively quick to move large blocks of assets as the magnitude of the hedge fund’s losses became apparent.
Credit Suisse will publish its first quarter results on Thursday, when it is expected to publish more details on the overall loss Archegos had on its finances.
The Archegos crisis started just weeks after Greensill Capital, a UK financial firm deeply entangled with Credit Suisse, filed for insolvency and left the bank with losses.
Credit Suisse has said his dealings with both Archegos and Greensill “require substantial further review and scrutiny.” It said the board has formed a crisis team and hired outside help to investigate it.
The study also examines how, after investing enormous amounts of money in risk management and oversight in recent years, the bank allowed itself to be mixed in both situations. In Greensill’s case, the bank has evaluated the relationship several times over the years, but has continued to expand business with the company.
—Juliet Chung contributed to this article.
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