The Downfall of Credit Suisse Simplified: Archegos
It all comes down to one name: Archegos. The collapse of this hedge fund was the main reason behind Credit Suisse's recent troubles.
Archegos Capital Management was a family office hedge fund founded by Bill Hwang, a former Tiger Management trader. The fund specialized in passive investing and had built up significant positions in several stocks using a combination of equity and derivatives.
In March of 2021, several of the stocks in which Archegos had invested experienced sharp declines, which triggered margin calls from the banks that had lent the fund money to finance its positions. When Archegos could not meet these margin calls, the banks were forced to unwind its positions, which led to substantial losses for the banks involved.
The exact reasons for the declines in the stocks held by Archegos are not entirely clear, but it is believed that a combination of factors, including broader market volatility, changes in regulatory rules, and company-specific news, may have contributed to the declines.
The collapse of Archegos had far-reaching consequences, impacting not only the fund itself but also the banks that had lent it money, including Credit Suisse, which suffered substantial losses as a result of the affair. The events surrounding Archegos have also led to increased scrutiny of the family office hedge fund model and the use of leverage in passive investing.
CS losses in 2021
The collapse of Archegos Capital Management significantly impacted Credit Suisse's financial results. Archegos was a large hedge fund that had significant exposure to various stocks through a complex network of derivatives contracts. When some of these stocks experienced sharp declines, it triggered margin calls that Archegos could not meet, leading to the unwinding of its positions and substantial losses for the banks that had lent it money, including Credit Suisse.
As a result of the Archegos affair, Credit Suisse reported a loss of $4.7 billion in the first quarter of 2021, significantly impacting its financial results for the year. The bank also announced plans to exit its prime services business, which was involved in the Archegos matter, and to strengthen its risk management practices. The impact of the Archegos affair highlights the importance of thorough risk management for banks and other financial institutions, particularly when it comes to complex and highly leveraged positions.
Most significant claims and scandals around Credit Suisse since 2020
Credit Suisse has faced a number of claims and legal actions over the past two decades from a wide range of parties, including individuals, organizations, and governments. Here's a quick rundown of some of the most notable cases:
Holocaust Era Claims: In the late 1990s and early 2000s, Credit Suisse, along with several other Swiss banks, faced claims from Holocaust survivors and their families for alleged complicity in the confiscation of Jewish assets during World War II. The claims were brought by individuals and organizations in several countries, including the United States, and although the exact amount of these claims is not publicly available, the Swiss banks agreed to pay a total of $1.25 billion to settle the claims in 1998.
Mortgage-Backed Securities Claims: In the wake of the 2008 financial crisis, Credit Suisse faced claims from investors who had purchased mortgage-backed securities from the bank. The investors claimed that the bank had failed to disclose the risks associated with the securities, leading to significant losses when the housing market crashed. The exact amount of these claims is not publicly available, but Credit Suisse agreed to pay several settlements, including a $536 million settlement in 2016.
Forex Trading Claims: In the aftermath of the forex trading scandal, Credit Suisse faced claims from investors who had been affected by the bank's manipulation of the foreign exchange market. The exact amount of these claims is not publicly available, but the bank agreed to pay several settlements, including a $536 million settlement in 2016.
Anti-Money Laundering Claims: The anti-money laundering claims against Credit Suisse were brought by regulatory authorities, who accused the bank of failing to properly monitor its client transactions for potential money laundering and other illicit activities.
These are just a few of the many claims and legal actions that Credit Suisse has faced over the years. Despite these challenges, the bank remains one of the world's most powerful and influential financial institutions, with a reputation for delivering the highest levels of service and expertise to its clients.