Archegos and Credit Suisse: risk management lessons
Laura Miller considers the risk management lessons from the leveraged loans to collapsed private family office Archegos
Risky bets are a part of the deal in investment banking, but taking a punt that ends up costing your institution $5.5bn dollars is less a gamble gone wrong and more a fork in the road to ask deep questions about your governance and risk management. Credit Suisse, having suffered the largest loss on Wall Street from the collapse of US-based family office Archegos Capital, is at the epicentre of this soul searching. But lessons from the breakdown should trigger introspection across the wider investment banking sector.
The plot of the saga, in a nutshell, is this: Credit Suisse acted as prime broker to the now collapsed Archegos, lending it large sums to finance the purchase of positions in various quoted companies. Archegos was betting the market price of these investments would rise. When the share price of some of these very large investments fell, Archegos had to exit many of its positions urgently, a discounted fire sale. This left Archegos unable to repay its loans to investment banks, including Nomura Holdings, Goldman Sachs and Morgan Stanley. However it is Credit Suisse that has been left holding the most titanic loss.