Credit Suisse Report Details Failures in Archegos Debacle


Credit Suisse It released a report Thursday that examines in painful detail the “fundamental failure of management and controls” that caused the bank to lose $5.5 billion from its business with mutual fund Archegos Capital Management earlier this year.

But investigators from the New York law firm hired to conduct the autopsy attributed the losses to incompetence and fears of alienating a major client, and said none of the bank’s employees had “committed fraud or illegal conduct or acted in bad faith.”

Reporting a huge drop in profits on Thursday as well, Credit Suisse said it would use the Archegos fiasco as “a turning point for its overall approach to risk management.” The bank said it would lose 23 employees or have to repay $70 million in bonuses and lay off nine of the group.

archegos Funded by money borrowed from Credit Suisse and other banks, the stock market crashed in March after bets went bad. Credit Suisse was slower to liquidate Archegos’ positions than Goldman Sachs and other creditors and suffered the biggest losses.

But the risk of doing business with Archegos has been obvious for years, according to the 165-page report released Thursday. Founder in 2012, Bill HwangPaul, Weiss, Rifkind, while managing another fund, pleaded guilty to US accusations of electronic fraud and filed insider trading allegations with the Securities and Exchange Commission, according to a report by law firm Wharton & Garrison. It was also banned from trading in Hong Kong in 2014.

According to the Paul, Weiss report, in 2015, Credit Suisse employees “shrugged” Mr. Hwang’s past after reviewing the risk of doing business with him. In subsequent years, the bank allowed Archegos to make big bets, mostly using borrowed money, and the fund was unable to act as it chronically exceeded limits on the amount of risk it was allowed to take on.

Credit Suisse executives ignored numerous red flags because they were aware that Archegos was working with other banks and were afraid of alienating a key client. When Credit Suisse risk managers suggested in February that Archegos would need to send an additional $1 billion in cash to reduce its leverage, those responsible for working with the fund said it was “almost asking them to move their business.” notice.

“The Archegos issue directly questions the competence of business and risk personnel who have all the necessary information to appreciate the magnitude and urgency of Archegos risks, but fail to take decisive and immediate action to address them at more than one point.” “A report from Paul,” Weiss said.

This week, Credit Suisse appointed David Wildermuth, a senior Goldman Sachs executive, as chief risk officer, the latest in a series of senior management changes. Mr. Wildermuth replaces Lara Warner, who stepped down in April.

remains a burden on Archegos Credit Suisse earnings. The bank said on Thursday that its net profit in the second quarter fell nearly 80 percent to CHF 253 million, or $278 million. The bank posted an additional loss of $653 million from Archegos in the quarter and also fell 18 percent in sales to francs 5.1 billion.

Credit Suisse also updated its progress in recovering the $10 billion invested by investors in funds held by the bankrupt firm. Green Capital. Credit Suisse, which markets so-called supply chain financing funds, said it will return at least $5.9 billion to investors, including a payment scheduled for August.



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