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''Later...'' | ''Later...'' | ||
It is no longer too soon, for | It is no longer too soon, for on July 29, 2021 the Credit Suisse Special Committee to the Board of Directors has presented its ''{{plainlink|https://www.credit-suisse.com/about-us/en/reports-research/archegos-info-kit.html|Report on Archegos Capital Management}}'' to the board and, for some reason known only to the board, they have published to it to the known world. This seems to be a final act of self-harm from an organisation whose serial acts of self-harm the report catalogues in such clinical, precise detail. | ||
''What on Earth did they think they would achieve by releasing this report?'' It caused ''another'' precipitous drop in the firm’s stock price — nearly four percent — to go with the twenty percent drop it suffered when news of the default first broke. | ''What on Earth did they think they would achieve by releasing this report?'' It caused ''another'' precipitous drop in the firm’s stock price — nearly four percent — to go with the twenty percent drop it suffered when news of the default first broke. | ||
That said, it is an act of self-harm for which the watching world should feel tremendously grateful. Not only a sizzling read, arriving just in time for Bank executives as they head for a fortnight to the | That said, it is an act of self-harm for which the watching world should feel tremendously grateful. Not only a sizzling read, arriving just in time for Bank executives as they head for a fortnight to the sun loungers of Mykonos and Ibiza, but it is a beautifully clear explanation of the business of [[equity prime brokerage]] in particular and global markets broking in general, and a coruscating dismemberment of the way investment banking operates, both inside Credit Suisse and without. | ||
This is a proper horror story: Stephen King has not a patch on this. | |||
''Everyone'' involved in the business of prime services, and global markets broking generally, should read this report. | |||
The Special Committee makes a number of excellent recommendations — all worth heeding — but stops short of the one that must have been most tempting to the Board: ''get the hell out of the broking business | And while the goings on at CS were breathtakingly, class-leadingly chaotic — it is hard to believe that any one organisation could have made ''so'' many unforgivable errors, in such scale, over such a long period, so consistently, missing many opportunities to cotton on, without catching even ''one'' lucky break as the apocalypse unfolded around it — this really is a royal flush of idiocy — the ''makings'' of all these [[joint and several liability|joint and several]] catastrophes is imprinted in the DNA of ''every'' multinational organisation. An onlooker who denies it — who does nmot shudder and think, ''there, but for the grace of God, goes my employer — is showing precisely the lack of awareness that nearly sank CS. | ||
After all, CS was by no means alone in taking a hammering in the fallout from Archegos. | |||
The Special Committee makes a number of excellent recommendations — all worth heeding — but stops short of the one that must have been most tempting to the Board: ''get the hell out of the broking business altogether''. | |||
===Concerns about Archegos=== | ===Concerns about Archegos=== | ||
*'''Trustworthiness''': Between 2012 and 2014 Bill Huang | *'''Trustworthiness''': Between 2012 and 2014 [[Bill Huang]] and his Tiger Asia fund was convicted of wire fraud, settled charges of [[insider trading]], and was banned from the Hong Kong securities industry for four years. Huang was only able to continue by returning all outside capital to its investors and “rebranding” as a family office exclusively running Huang’s own (and, well, his prime brokers’) money. | ||
*'''Skill''': Over the 10 years between the insider trading debacle and the final collapse, Archegos suffered multiple massive drawdowns. Extreme volatility which sounds like | *'''Skill''': Over the 10 years between the insider trading debacle and the final collapse, Archegos suffered multiple massive drawdowns. Extreme volatility which sounds like Huang had no real skill as a money manager, and was rather riding around like a child holding a firehose of leverage. | ||
*'''Controls''': As early as 2012 the Credit team had identified Archegos’ [[key man]] risk (in | *'''Controls''': As early as 2012 the Credit team had identified Archegos’ [[key man]] risk (in Huang), volatility, mediocre operational management practices, fraud risk, and poor risk management as significant concerns. | ||
===Mismargining=== | ===Mismargining=== | ||
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*'''They didn’t keep an eye on the direction of the portfolio''': Archegos at first used the swap book to put on short positions that offset the long bias on its cash book. It used this bias to argue for lower margins — a request the business accommodated, provided the combined portfolio bias did not exceed 75% long or short. Over time Archegos crequently exceeded these limites, often for months at a time, but CS took no action, accepting Archegos’ promises to correct the bias. | *'''They didn’t keep an eye on the direction of the portfolio''': Archegos at first used the swap book to put on short positions that offset the long bias on its cash book. It used this bias to argue for lower margins — a request the business accommodated, provided the combined portfolio bias did not exceed 75% long or short. Over time Archegos crequently exceeded these limites, often for months at a time, but CS took no action, accepting Archegos’ promises to correct the bias. | ||
*'''They didn’t take ''enough'' margin''': Archegos pressured CS to lower its swap margins, citing more favourable margins it was getting from other brokers due to the effect of [[cross-margining]]. | *'''They didn’t take ''enough'' margin''': Archegos pressured CS to lower its swap margins, citing more favourable margins it was getting from other brokers due to the effect of [[cross-margining]]. | ||
===Had weapons. Didn’t use them.=== | |||
{{sa}} | {{sa}} | ||
''{{plainlink|https://www.credit-suisse.com/about-us/en/reports-research/archegos-info-kit.html|Report on Archegos Capital Management}}'' | ''{{plainlink|https://www.credit-suisse.com/about-us/en/reports-research/archegos-info-kit.html|Report on Archegos Capital Management}}'' | ||