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''Later...''
''Later...''


{{Quote|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,<ref>''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.</ref> 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.  
{{Quote|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 reasons known only to the board,<ref>''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.</ref> they have published to it to the world, a final act of self-harm from an organisation whose serial acts of self-harm the report catalogues in clinical detail.  


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.  
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 a beautifully clear explanation of the [[equity prime brokerage]] business in particular and global markets broking in general, and a coruscating indictment of the way large organisations of all kinds operate.  
:—JC, July 2019}}
:—JC, July 2019}}


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*[[Archegos#The broker that didn’t bark in the night-time|The broker that didn’t bark in the night-time]]
*[[Archegos#The broker that didn’t bark in the night-time|The broker that didn’t bark in the night-time]]
*[[Archegos#Juniorisation of the meatware|Juniorisation of the meatware]]
*[[Archegos#Juniorisation of the meatware|Juniorisation of the meatware]]
*[[Archegos#People’s front of Judea|People’s front of Judea]]
*[[Archegos#How organisations work|How organisations work]]
*[[Archegos#How organisations work|How organisations work]]
*[[Archegos#Red flags|Red flags]]
*[[Archegos#Red flags|Red flags]]
===Intro===
===Intro===
''Everyone'' involved in the business of prime services, and global markets broking generally, should read {{plainlink|https://www.credit-suisse.com/about-us/en/reports-research/archegos-info-kit.html|the Credit Suisse Report}}.
''Everyone'' involved in the business of [[prime services]], and global markets broking generally, should read {{plainlink|https://www.credit-suisse.com/about-us/en/reports-research/archegos-info-kit.html|the Credit Suisse Report}}.


And while the goings on at this brokerage 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 not shudder and think, ''there, but for the grace of God, go I'' — is showing ''precisely'' the lack of awareness that caused this situation.  
And while the goings on at this brokerage 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 not shudder and think, ''there, but for the grace of God, go I'' — is showing ''precisely'' the lack of awareness that caused this situation.  
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===Mis-margining===
===Mis-margining===
Credit Suisse’s margining methodology for swaps was, from the outset, positively moronic. The JC is a [[legal eagle]], not a [[credit]] guy, ''but'' even ''he'' could spot the flaws in this.
Credit Suisse’s margining methodology for swaps was, from the outset, positively moronic. The JC is a [[legal eagle]], not a [[credit]] guy, ''but'' even ''he'' could spot the flaws in this.
*'''[[TRS]] not [[synthetic equity]]''': CS appears to have documented the trades as “[[total return swap]]s” under a standard [[equity derivatives]] [[master confirmation]], and not as “[[synthetic prime brokerage]]” under a portfolio swap master confirmation. The differences are subtle, but there are two in particular:  
*'''[[TRS]] not [[synthetic equity]]''': CS appears to have documented the trades as “[[total return swap]]s” under a standard [[equity derivatives]] [[master confirmation]], and not as “[[synthetic prime brokerage]]” under a portfolio swap master confirmation. The differences are subtle, but there are two in particular:
:*[[TRS]] tend to be “[[Bullet swap|bullet]]” swaps with a scheduled termination date and do not “[[re-strike|restrike]]”  their notional before maturity, and they are [[static margin|statically margined]].  
:*[[TRS]] tend to be “[[Bullet swap|bullet]]” swaps with a scheduled termination date and do not “[[re-strike|restrike]]”  their notional before maturity, and they are [[static margin|statically margined]].
:*[[Portfolio swap]]s are designed to replicate cash [[prime brokerage]]; the investor does not have a specified maturity date in mind at the outset, and may keep a swap on for a day or five years, so the broker is completely in the dark as to the likely tenor of the trade. This makes fixing an amount of margin upfront fraught. To assist with nerves in the risk department, the notional of synthetic equity [[re-strike]]s periodically (like, monthly), and [[initial margin]] is calculated daily against the ''prevailing'' “{{eqderivprov|Final Price}}” rather than the ''original'' “{{eqderivprov|Initial Price}}”. Archegos swaps were, typically, bullet swaps margined with a fixed amount up front. As they appreciated, the margin value as a proportion of their prevailing value eroded. Archegos apparently used the [[variation margin]] it was earning through those appreciating positions to double down on the same trades — ''also'' static margine — pushing the equity price further up, exacerbating the problem. His swap portfolio was a ticking time-bomb.
:*[[Portfolio swap]]s are designed to replicate cash [[prime brokerage]]; the investor does not have a specified maturity date in mind at the outset, and may keep a swap on for a day or five years, so the broker is completely in the dark as to the likely tenor of the trade. This makes fixing an amount of margin upfront fraught. To assist with nerves in the risk department, the notional of synthetic equity [[re-strike]]s periodically (like, monthly), and [[initial margin]] is calculated daily against the ''prevailing'' “{{eqderivprov|Final Price}}” rather than the ''original'' “{{eqderivprov|Initial Price}}”. Archegos swaps were, typically, bullet swaps margined with a fixed amount up front. As they appreciated, the margin value as a proportion of their prevailing value eroded. Archegos apparently used the [[variation margin]] it was earning through those appreciating positions to double down on the same trades — ''also'' static margine — pushing the equity price further up, exacerbating the problem. His swap portfolio was a ticking time-bomb.
*'''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 frequently exceeded these limits, 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 frequently exceeded these limits, often for months at a time, but  CS took no action, accepting Archegos’ promises to correct the bias.
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