On the evening of March 24, 2021, the head of Credit Suisse’s investment bank and the group’s chief risk officer were told about a client called Archegos Capital Management. Neither could recall having heard the name before.
There was not much left to discuss. Archegos, the family office of former hedge fund manager Bill Hwang, had just told the bank it no longer had the cash to meet margin calls, from Credit Suisse or anyone else. On March 26 the bank declared it in default and started selling. The loss came to about $5.5 billion.
The people who watched Archegos every day had been looking at its numbers for a year. The bank had limits built for this kind of client. One capped “potential exposure,” roughly what the bank stood to lose if the client failed, at $20 million. By April 2020 Archegos was at more than ten times that. By August it was just under $530 million.
A second limit capped losses in a stress scenario at $250 million. On July 22, 2020, Archegos stood at $828 million. From then on it was in breach virtually every week until it collapsed. Meanwhile the margin it posted on its swaps, cut in 2019 from about 20 percent to 7.5 percent at its own request, had slipped by September 2020 to an average of 5.9 percent.
The alarms worked. The law firm the board hired to investigate later wrote: “The Archegos risks were identified and were conspicuous.” What the alarms produced was accommodation. When Archegos failed the “Severe Equity Crash” test, the business argued for a gentler one called “Bad Week,” and risk agreed. Archegos breached that too. In its January 2021 review the risk team downgraded Archegos’s credit rating and, at the same time, recommended raising its potential exposure limit to $50 million, which was signed off in February. It also raised the scenario limit to $500 million.
Some people pushed back. In late summer 2020, the risk analyst covering Archegos told his supervisor that the people he would “trust to have a backbone” had left the business’s own risk team, which was now run by a former sales and marketing executive who had covered Archegos for years. The analyst and his supervisor agreed the risk was not being managed. When they followed up, they were told progress was being made. At the top of the business, neither of the two co-heads of Prime Services, the unit that served Archegos, believed he “owned” its US swaps business.
There was even a committee built for this. After another hedge fund client, Malachite, cost the bank $214 million in March 2020, Credit Suisse set up a counterparty oversight committee. It discussed Archegos in September 2020, decided to revisit it “at a future meeting,” and did not return to it for nearly six months. On March 8, 2021, it agreed to move Archegos to stricter margining within a couple of weeks, named an owner for the task, and gave him a target date in April. Between March 11 and 19, the bank paid Archegos $2.4 billion in margin the fund asked to have back.
In 2020, Archegos had brought Credit Suisse about $16 million in revenue.
Switzerland’s regulator, FINMA, found in 2023 that “exceeded limits were simply increased repeatedly. Thus, the overruns were reduced, but the actual risks of loss increased.” Britain’s Prudential Regulation Authority fined the bank’s two UK firms £87 million, the regulator’s largest fine ever. The Federal Reserve announced its fine, $268.5 million, as a consent order with UBS. Six weeks earlier, UBS had completed its takeover of Credit Suisse.