Goldman Sachs CEO David Solomon said Tuesday that his bank’s risk management systems performed well after the forced development of a highly leveraged fund closed several shares in the United States and China and took a bite out of millions of dollars from other banks.
Shares of Discovery and ViacomCBS fell sharply in March after investment banks began buying large blocks of shares at very low prices when a client failed to meet margin requirements. This client was reported to be the family office Archegos Capital Holdings, a highly leveraged fund led by Bill Hwang.
The forced sale caused an estimated $ 4.7 billion loss to Credit Suisse, where two executives announced their resignations on Tuesday. Goldman, however, has not reported any material losses from operations.
“From my perspective, our risk controls worked well. We identified the risk at the beginning. We took quick corrective action to reduce the risk according to the contract we had with the client,” Solomon told ” CNBC’s Squawk Box. “And I can’t really talk about what other banks have done and how they’ve handled the situation, but I’m very pleased with how our team has handled it.”
Hwang made his concentrated bets through equity swaps, where the investment banks he worked with officially owned the shares and used high leverage in their trading. When the shares went down and he was unable to meet his capital needs, the banks were left with large chunks of shares.
“I think this is a classic case of an investor with concentrated positions that have leverage against them. And when the price moves against them, it’s important to take risks,” Solomon said. “It’s not the first time this has happened and it certainly won’t be the last.”
The Archegos explosion has renewed debate over the possible need for greater control over family offices and exchange positions. Solomon said the discussion of transparency around more complex capital positions “deserves debate.”
Correction: Solomon appeared in “Squawk Box”.