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

Credit Suisse CS 0.87%

The people familiar with the bank have made CEO Thomas Gottstein and chief risk officer Lara Warner, who recently left the bank, aware of the bank’s exposure to Archegos. Enough mr. Gottstein, enough mr. Warner had previously been aware of the fund as a key client, these people said.

A spokesman for Credit Suisse declined to comment.

The exposure shows for the first time the extent of Credit Suisse’s relationship with Archegos, which was unraveled late last month. Credit Suisse reported a $ 4.7 billion loss, reduced its dividend and said Warner, its chief investment officer and other staff would leave. Credit Suisse also faces questions from regulators in the US and Europe about its relationship with Archegos and the wind silence.

Archegos, a US family investment firm of former Tiger Asia manager Bill Hwang, has placed big bets on some stocks with money borrowed from banks. When some major positions were overturned and Archegos could not reach offices, it caused one of the biggest sudden losses in Wall Street history.

Archegos spread his bet over half a dozen banks. Others, including Nomura Holdings Inc.

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and Morgan Stanley,

also reported large losses. Credit Suisse lent more to Archegos than other lending banks and was one of the last to go out, The Wall Street Journal reported earlier.

Within the bank, top management now knows that the so-called supposed exposure, or the underlying value of the assets it managed on behalf of Archegos, was more than $ 20 billion, people familiar with the matter said.

Some people in the bank who were familiar with the exposure of Archegos thought it was a fraction of the amount of about $ 20 billion, one of the people familiar with the matter said.

People familiar with the matter have not partially protected Credit Suisse from its exposure to Archegos, as it has not yet put in place a system that monitors in real time how much risk a position for the bank poses as the prices of the underlying bonds does not change. .

The people, known as dynamic margins, are not fully implemented in the division that oversees Archegos’ investments in Credit Suisse. The bank planned to migrate the Archegos positions to the system.

Archegos made a large portion of its investments through a derivative instrument called a total return variable. These are contracts mediated by Wall Street banks that allow users to take the gains and losses of a portfolio of shares or other assets in exchange for a fee. Using these swaps, Archegos has taken a huge stake in ViacomCBS Inc.,

Discovery Inc.

and a handful of other media and technology companies, while putting limited funds up front, essentially lending to Credit Suisse and other Wall Street banks.

Because the share prices of many of Archegos’ investments changed rapidly, Credit Suisse could not fully monitor the bank’s own risk without these systems used by many other Wall Street banks, people familiar with the matter said. .

In the days before banks quickly started blocking downloading large blocks of Archegos’ shares or investments related to the swap transactions, a manager at Credit Suisse clashed over how and how aggressively to sell, some people said. Goldman Sachs Group Inc.

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and Morgan Stanley was relatively quick to move large assets as the extent of the hedge fund’s losses became apparent.

Credit Suisse is expected to report its first-quarter results on Thursday, when it is expected to publish more details on the overall damage Archegos has done to its finances.

The Archegos crisis erupted a few weeks after Greensill Capital, a British finance company deeply entangled in Credit Suisse, filed for bankruptcy and left the bank on the brink of bankruptcy.

Credit Suisse said the negotiations with Archegos and Greensill should be thoroughly investigated. ‘It is said that the board has put together a crisis team and hired outside help to investigate.

The investigation will also investigate how the bank, after pouring large sums of money into risk controls and supervision over the past few years, has allowed itself to become involved in both situations. In the case of Greensill, the bank has reviewed the relationship several times over the past few times, but has expanded 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]