Credit Suisse and Its Management, Risk, and Inaction Problems

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 on 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.

About mmjdiary

Professor Marianne Jennings is an emeritus professor of legal and ethical studies from the W.P. Carey School of Business at Arizona State University, retiring in 2011 after 35 years of teaching undergraduate and graduate courses in ethics and the legal environment of business. During her tenure at ASU, she served as director of the Joan and David Lincoln Center for Applied Ethics from 1995-1999. In 2006, she was appointed faculty director for the W.P. Carey Executive MBA Program. She has done consulting work for businesses and professional groups including AICPA, Boeing, Dial Corporation, Edward Jones, Mattel, Motorola, CFA Institute, Southern California Edison, the Institute of Internal Auditors, AIMR, DuPont, AES, Blue Cross Blue Shield, Motorola, Hy-Vee Foods, IBM, Bell Helicopter, Amgen, Raytheon, and VIAD. The sixth edition of her textbook, Case Studies in Business Ethics, was published in February 2011. The ninth edition of her textbook, Business: lts Legal, Ethical and Global Environment was published in January 2011. The 23rd edition of her book, Business Law: Principles and Cases, will be published in January 2013. The tenth edition of her book, Real Estate Law, will also be published in January 2013. Her book, A Business Tale: A Story of Ethics, Choices, Success, and a Very Large Rabbit, a fable about business ethics, was chosen by Library Journal in 2004 as its business book of the year. A Business Tale was also a finalist for two other literary awards for 2004. In 2000 her book on corporate governance was published by the New York Times MBA Pocket Series. Her book on long-term success, Building a Business Through Good Times and Bad: Lessons from Fifteen Companies, Each With a Century of Dividends, was published in October 2002 and has been used by Booz, Allen, Hamilton for its work on business longevity. Her latest book, The Seven Signs of Ethical Collapse was published by St. Martin’s Press in July 2006 and has been a finalist for two book awards. Her weekly columns are syndicated around the country, and her work has appeared in the Wall Street Journal, the Chicago Tribune, the New York Times, Washington Post, and the Reader's Digest. A collection of her essays, Nobody Fixes Real Carrot Sticks Anymore, first published in 1994 is still being published. She has been a commentator on business issues on All Things Considered for National Public Radio. She has served on four boards of directors, including Arizona Public Service (1987-2000), Zealous Capital Corporation, and the Center for Children with Chronic Illness and Disability at the University of Minnesota. She was appointed to the board of advisors for the Institute of Nuclear Power Operators in 2004 and served on the board of trustees for Think Arizona, a public policy think tank. She has appeared on CNBC, CBS This Morning, the Today Show, and CBS Evening News. In 2010 she was named one of the Top 100 Thought Leaders in Business Ethics by Trust Across America. Her books have been translated into four different languages. She received the British Emerald award for authoring one of their top 50 articles in management publications, chosen from over 15,000 articles. Personal: Married since 1976 to Terry H. Jennings, Maricopa County Attorney’s Office Deputy County Attorney; five children: Sarah, Sam, and John, and the late Claire and Hannah Jennings.
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