The Credit Suisse board commissioned an investigation into the losses the bank has faced resulting from its ties to Archegos. By March 23, 2021, Credit Suisse had $27 billion in exposure ob its Archegos investment. While it dawned on few people at the bank that it might be good to obtain a little more collateral from Archegos, no one ever asked. In international banks, the right hand does not always know what the left hand is doing. The end result, according to Credit Suisse’s review by a law firm is that Credit Suisse did not care to know the answers about what was really going on with Archegos.
Bill Hwang, the founder of Archegos had a long history with Credit Suisse as well as one with the SEC. His now defunct hedge fund, Tiger Asia, settled insider trading charges with the SEC. Mr. Hwang was banned from trading in Hong Kong. That’s when Credit Suisse stepped in and helped Mr. Hwang relaunch a hedge fund in the United States, the no defunct Arcehgos. Credit Suisse employed no additional scrutiny despite Hwang’s history. There was also no additional action when the margin calls on Archegos kept coming even as Credit Suisse’s risk exposure ballooned to $530 million. When credit risk managers escalated their concerns about risk and exposure due to Archegos, Credit Suisse’s combination of poor processes and too many junior staffers resulted in no action being taken to rein in Hwang. By March of 2021, Credit Suisse had $27 billion in exposure due to Archegos. The communication was so poor that the CEO was unaware of the extent of his bank’s exposure.
Perhaps the most telling part of the report was, “The business was focused on maximizing short-term profits and failed to rein in, and, indeed, enabled Arcehgos’s voracious risk-taking.” The young ‘uns running risk and oversight were meeting their numbers and doing well, temporarily. No reason to rock the boat. They created a massive risk with no systems in place to curb it.
Good news, though. Credit Suisse has hired a chief risk officer from the ranks of Goldman Sachs. It will take a great deal more than that to straighten around the culture of this bank.