Goldman Sachs CEO David Solomon said on Tuesday that his bank’s risk management systems are performing well after the forced relaxation from a strong leverage fund stabbed several stocks in the US and China and bit a billion dollars from other banks.
Shares of Discovery and ViacomCBS dropped dramatically in March after investment banks began buying large blocks of the shares at many discounted prices after a client did not meet the margin requirements. It was widely reported that the client’s family office was Archegos Capital Holdings, a fund with strong leverage by Bill Hwang.
The forced sale caused an estimated loss of $ 4.7 billion at Credit Suisse, where two executives announced their resignations on Tuesday. However, Goldman did not report material losses from the transactions.
“From my perspective, our risk management worked well. We identified risk early. We took quick, corrective steps to reduce our risk according to the contract we had with the client,” Solomon told Squawk on the Street of CNBC said. “And I can’t really talk about what other banks have done and how they handled the situation, but I’m very pleased with how our team handled it.”
Hwang used his concentrated betting through stock exchanges, where the investment banks he worked with officially owned the shares and used high leverage in his trading. When the shares fell and he could not meet his capital requirements, the banks had large chunks of the shares.
“I think it’s a classic case of an investor with concentrated positions having leverage against them. And if the price moves against it, it’s important to take risks … This is not the first time this has happened. and it’s definitely not going to be the last, ” Solomon said.
The explosion of Archegos has renewed the debate over the possible need for more investigation into family offices and exchange positions. Solomon said the discussion on transparency around more complicated stock positions “deserves debate”, but declined to say whether it was at all appropriate to work with Bill Hwang, given his earlier problems with insider trading.
“I do not think going back and making such decisions at this stage is the answer to that,” he said.