David Solomon, CEO of Goldman Sachs, said on Tuesday that his bank’s risk management systems performed well after the forced settlement of a high-leveraged fund fueled several stocks in the US and China and snatched a multi-billion dollar bite from other banks.
Shares of Discovery and ViacomCBS fell dramatically in March after investment banks began buying large blocks of stock at heavily discounted prices when a client failed to meet margin requirements. That client was widely said to be the family office Archegos Capital Holdings, a high-leverage fund run by Bill Hwang.
The forced sale caused an estimated loss of $ 4.7 billion at Credit Suisse, where two executives announced their resignation on Tuesday. However, Goldman has not reported any material losses on the transactions.
“From my perspective, our risk controls worked well. We identified risks early on. We took immediate corrective action to reduce our risk under the contract we had with the customer,” Solomon said on CNBC’s “Squawk Box.” “And I can’t really talk about what other banks have done and how they handled the situation, but I am very happy with how our team has handled it.”
Hwang made his concentrated bets through stock swaps, with the investment banks he worked with officially owning the stock and using high leverage in his trading. When stocks fell and he couldn’t meet his capital requirements, the banks were left with large chunks of the stock.
“I think this is a classic case of an investor with concentrated positions leveraging them. And when the price moves against them, it’s important to reduce risk,” Solomon said. “This isn’t the first time this has happened and it certainly won’t be the last.”
The Archegos outbreak has sparked discussion about the possible need for more research into family offices and swap positions. Solomon said the discussion of transparency around more complex stock positions “deserves debate.”
Correction: Solomon appeared on “Squawk Box.”