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Unpacking the report on Credit Suisse’s Archegos disaster

More focus on keeping a client happy than keeping the bank solvent; a risk management department that wasn’t tough enough and enabled bad practice; a willful reduction in margin; and two co-heads who each believed the other ran the relevant business. The report into Credit Suisse’s Archegos debacle makes grim reading.

Photo: Reuters

A business more scared of losing a client than addressing the risks that client was bringing to the bank. That’s the central lesson of the Credit Suisse Group special committee report on Archegos Capital Management compiled by Paul, Weiss, Rifkind, Wharton & Garrison and released to the world today. It’s an expensive lesson: $5.5 billion to be precise.

“The Archegos-related losses sustained by CS are the result of a fundamental failure of management and controls in CS’s investment bank and, specifically, in its Prime Services business,” the report says.

“The business was focused on maximizing short-term profits and failed to rein in and, indeed, enabled Archegos’s voracious risk-taking. There were numerous warning signals – including large, persistent limit breaches – indicating that Archegos’s concentrated, volatile and severely under-margined swap positions posed potentially catastrophic risk to CS.

“Yet the business, from the in-business risk managers to the Global Head of Equities, as well as the risk function, failed to heed these signs, despite evidence that some individuals did raise concerns appropriately.”

Damning stuff – but only to a point: the report alleges nothing illegal and goes no higher than the head of equities in apportioning blame.

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