Inside Credit Suisse’s $5.5 Billion Breakdown

In mid-March, shares in ViacomCBS Inc. and Discovery Inc. rocketed skyward. That was great news for Bill Hwang. His firm, Archegos Capital Management, had borrowed billions from Credit Suisse Group AG to make wagers on a handful of stocks, including the entertainment companies, according to a Wall Street Journal reported. As is standard practice, Archegos had handed over cash to Credit Suisse to secure its bets. With the stocks more than doubling since the start of the year, Archegos asked for some of that money back, and it was credited. The transfer essentially meant Archegos had even less cash on the line backing up its positions. Some of Credit Suisse’s rivals, meanwhile, moved in the opposite direction. They noticed an increasing risk in the concentration of the firm’s positions and demanded it back up its investments with additional cash, according to executives at the banks. Days later, ViacomCBS plunged, Archegos collapsed and the Swiss bank was stuck with a colossal loss. Now Credit Suisse is picking over what went so badly wrong. The central questions include, why did it give the money back to Archegos? And more broadly, why did it back risky bets to a level that went wildly beyond all its stated norms and projections? Bank executives had even received a stark warning a year earlier on how the bank was handling risk—but the recommended changes hadn’t been made. A preliminary conclusion is emerging: Credit Suisse’s creaky risk-management systems didn’t do their job as the bank’s guardrails and left it highly exposed to human errors in judgment, according to current and former people at the bank. Read more. (Subscription required.)
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