If you can remember in March a firm from Hong Kong lost over $10 billion because it was leveraged more than it should be. The company used the firms of Credit Suisse, Nomura Securities, Morgan Stanley and Goldman Sachs to leverage the returns and for a while it worked very well. Then the market changed, the stocks Archegos focused on went down and the big investment banks started selling stocks to meet margin calls. Archegos did not have the capital to wait it out and the investment banks lost money. Credit Suisse seemingly lost the most money and the management report has been issued on why Credit Suisse lost money.
In article by Brenna Hughes Neghaiwi of Reuters the report said a lackadaisical attitude toward risk and a lack of accountabliltiy were to blame for Credit Suisse $5.5 billion loss.
The independent assessment wrote the losses were the result of a fundamental failure of management and control’s in Credit Suisse Investment Bank particularly in the Prime Services business. The business was focused on maximizing short-term profits and failed to rein in and enabled Archegos’ voracious risk-taking.
The bank responded that it would put risk management at the heart of our decision-making processes.
Besides the losses, the bank has taken action against 23 staff with 9 let go and a total of $70 in bonuses taken back.
New Chairman Antonio Horta-Osorio is trying to turn the page after a swathe of investigations, executive changes, executive changes and divisional reshuffles. Management is promising to unveil a strategic overhaul by year end. Credit Suisse appointed Goldman Sachs partner David Wildermuth as the new chief risk officer.
Linking to dividend paying stocks, in the investment banking world credit is given and loans are repaid and bonuses made. The important part of the equation is loans are repaid, there is always an issue can the client repay the loans. The risk officer’s position is one of the most important in the bank, if there is lack of people saying no, traders will trade for the highest short term profits and biggest bonuses. The risk officer is suppose to be a check on trading. For a profitable company, look who says no to projects but ensures the company makes money on yearly basis.
There are more questions than answers, till the next time – to raising questions.