Credit Suisse’s exposure to Archegos investments increased by more than $ 20 billion

Credit Suisse CS 0.87%

CEO Thomas Gottstein and chief risk officer Lara Warner, who recently left the bank, only learned 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 case. bench. Neither Mr. Gottstein nor Mrs. Warner had had knowledge of the fund as a major client prior to that, these people said.

A Credit Suisse spokesman declined to comment.

The exhibition reveals for the first time the scope of Credit Suisse’s relationship with Archegos, which was unveiled late last month. Credit Suisse reported a loss of $ 4.7 billion, cut the dividend and said Ms Warner, the head of the investment bank and the rest of the staff would leave. Credit Suisse also faces questions from U.S. and European regulators about its relationship with Archegos and the wind.

Archegos, an American family-owned investment company of former Tiger Asia manager Bill Hwang, was heavily betting on shares with money borrowed from banks. When some important positions were reversed and Archegos was unable to answer margin calls, it caused one of the largest sudden losses in Wall Street history.

Archegos distributed his bets to half a dozen banks. Others, including Nomura Holdings Inc.

and Morgan Stanley,

it also reported large losses. Credit Suisse lent more to Archegos in relation to its size than other creditor banks and was one of the last to come out, 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 more than $ 20 billion, according to people familiar with the matter.

Some people at the bank who were familiar with the Archegos exhibition had thought it was a fraction of the roughly $ 20 billion figure, said one of the people familiar with the subject.

Credit Suisse could not be protected in part from its exposure to Archegos because it had not yet put in place a system that would control in real time the risk of creating a position for the bank as the prices of the underlying securities changed, as they say people familiar with the subject.

This system, known as the dynamic margin, was not fully implemented in the division that oversaw Archegos ’investments within Credit Suisse, according to people. One person said the bank had planned to migrate Archegos ’positions to this system sometime in the spring.

Archegos made a large part of its investments through a derivative called total return swap. These are contracts brokered by Wall Street banks that allow a user to assume the profits and losses of a portfolio of shares or other assets in exchange for a commission. Using these exchanges, Archegos had large stakes in ViacomCBS Inc.,

Discovery Inc.

and a handful of other media and technology companies, while publishing limited funds in advance, essentially on loans from Credit Suisse and other Wall Street banks.

Because the stock prices of many of Archegos’ investments were changing rapidly, Credit Suisse could not fully control the bank’s own risk without these systems, which are used in many other Wall Street banks, according to familiar people. .

In the days before banks began to quickly unload large blocks of Archegos stakes or stakes related to their swaps, Credit Suisse executives clashed when and how aggressively they were sold, some people said. Goldman Sachs Group Inc.

and Morgan Stanley were relatively quick to move large blocks of assets as the scale of hedge fund losses became apparent.

Credit Suisse is due to report its first quarter results on Thursday, when it is expected to publish more details on the global damage Archegos suffered to its finances.

The Archegos crisis arose just weeks after Greensill Capital, a British financial firm deeply embroiled in Credit Suisse, filed for insolvency and left the bank trapped by losses.

Credit Suisse has said its relations with Archegos and Greensill need “more substantial review and control”. He said his board formed a crisis team and hired outside help to investigate.

Research will also examine how the bank, after investing large amounts of investment in controls and risk oversight in recent years, was allowed to participate in both situations. In Greensill’s case, the bank reviewed the relationship several times in recent years, but continued to expand its business with the company.

—Juliet Chung contributed to this article.

Write to Emily Glazer at [email protected], Maureen Farrell at [email protected] and Margot Patrick at [email protected]