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Credit Suisse expects a $4.7bn loss from the collapse of Archegos. The bank has suspended share buybacks, cut its dividend, and announced the departure of seven key executives.
The US SEC (Securities and Exchange Commission) has reportedly opened a preliminary investigation into the collapse of family office Archegos Capital Management, which has caused at least USD 6.9 billion in losses at Wall Street banks.
The examination is said to be in its early stages, considered “fairly routine after a major market blowup”, and may not necessarily lead to allegations of wrongdoing. The probe is being led by the asset management group in the SEC’s enforcement division.
Treasury Secretary Janet Yellen also said last week at a meeting of the FSOC (Financial Stability Oversight Council) that a taskforce has been revived to address the potential systemic risk concerns of over-leveraged hedge funds. The so-called Hedge Fund Working Group has not been in operation since the Trump administration shut down the project in 2016.
The sudden liquidation of hedge fund Archegos at the end of March was prompted by a sharp drop in ViacomCBS’s share price – to which the fund was heavily exposed through total return swaps. Archegos faced margin calls and defaulted, forcing banks such as Credit Suisse and Nomura to sell the collateral they held against their exposures to Archegos with heavy losses.
The incident has also raised questions over the transparency of total return swaps brokered by Wall Street banks, which allowed Archegos to build its exposures with relatively small upfront payments and ultimately expose the banks to losses. Total return swaps provide professional investors exposure to stocks or other assets without them actually having to hold the underlying shares or report their positions.
SEC rules require investors who acquires more than 5 percent stake in a company’s shares to publicly disclose the stake. As a family office, transparency around Archegos was limited, and it was not required to disclose synthetic positions under the total return swaps. New rules covering equity total return swaps will come into force later this year.
Credit Suisse first revealed last Monday (29 March) that it was expecting a significant loss in its first quarter as a result of trading losses tied to the Archegos. The bank is said to have offloaded shares tied to Archegos more than a week after other banks.
Credit Suisse now says it expects to post a CHF 4.4 billion (USD 4.7 billion) pre-tax loss from the collapse of Archegos. The bank has additionally suspended its share buyback programme, cut its dividend by two-thirds, scrapped executive board members’ bonuses, and announced the departure of seven key executives.
The Archegos crisis emerged just weeks after UK finance firm Greensill Capital filed for insolvency, leaving Credit Suisse on the hook for an estimated USD 3 billion in losses on supply chain finance funds.
Meanwhile, three Japanese financial institutions have also incurred losses on Archegos. Nomura has already estimated a possible USD 2 billion loss, Mitsubishi UFJ Securities has estimated a loss of around USD 270 million, and Mizuho faces USD 90 losses from loan receivables involving Archegos.
Japan’s Finance Minister Taro Aso said the losses are not expected to cause bigger problems or undermine Nomura’s or Mitsubishi’s financial health. The FSA (Financial Services Agency) will share information from the two institutions with the BOJ (Bank of Japan) and overseas authorities, he added.
Goldman Sachs, Morgan Stanley, UBS and Deutsche Bank are also said to have been exposed to Archegos, but their losses are said to not be material.



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