Credit Suisse Takes $4.7B Hit on Archegos Meltdown • Hacker News Board

Re: Credit Suisse Takes $4.7B Hit on Archegos Meltdown

#71

Post by osrec » Tue, Apr 06, 2021, 5:15 PM UTC

rwmj wrote: post #67

osrec wrote: post #29

Earlier quoted context omitted.

Lara Warner (Chief Risk Officer), was fired today, so I guess she's lost a fair bit.

Did any of the people fired have to pay back their bonuses? Will they be unable to walk into new jobs?

She's probably got a fairly sweet deal, and has already earned enough money to not need to worry too much about anything. The real hit is to her reputation, but it will make no material difference to what she can afford to have in life. I've seen plenty of disgraced bankers get hired in even more senior positions a few short months after their fall from power.

Re: Credit Suisse Takes $4.7B Hit on Archegos Meltdown

#72

Post by fractionalhare » Tue, Apr 06, 2021, 5:16 PM UTC

manishsharan wrote: post #56

fractionalhare wrote: post #39

Earlier quoted context omitted.

> From what I gather, Archegos had $10B of equity in total? Typically (sensibly) you don't put all your eggs in one basket as a fund, even a quite concentrated fund. It was $20B. Hwang's whole schtick from the outset of his family office was to hyper lever up on high growth companies. By doing this he went from $1B to $20B of actual capital in about 2 years. Then he blew up spectacularly because he was levered up abo…

>> hyper lever up on high growth companies ViacomeCBS was a high growth company? wtf?

No, he wasn't exclusively concentrated in tech or growth.

Re: Credit Suisse Takes $4.7B Hit on Archegos Meltdown

#73

Post by SkyMarshal » Tue, Apr 06, 2021, 5:18 PM UTC

itsoktocry wrote: post #17

osrec wrote: post #8

As someone who has worked in the Investment Banking industry for a while, I'm always amazed that risk professionals get paid significantly less than the front office guys. This in turn attracts less talented people in risk, who can then be outsmarted by the whipper snappers in the front office teams. If IBs don't want to lose bucket loads of money every so often, pay your risk guys a bit more so you hire the same cal…

> pay your risk guys a bit more so you hire the same calibre of individual that would otherwise end up on the trading/structuring/quant desks. Reverse the causation here: they don't pay risk guys enough because they don't really care about the risks they are taking. Because, you're right, if they cared they could solve issues like this tomorrow.

They do care about the risks they’re taking and invest a lot of money into risk management. But the real risk management is in buying politicians with campaign donations, lobbying, and revolving door jobs after they leave office. Favorable regulations, weak punishments, and bailouts are much more effective. Bank risk departments are just risk theater.

Re: Credit Suisse Takes $4.7B Hit on Archegos Meltdown

#74

Post by occamrazor » Tue, Apr 06, 2021, 5:32 PM UTC

fractionalhare wrote: post #39

lordnacho wrote: post #13

As a former fund manager, I have some things to explain and some things to ask. First, the thing to explain: Basically CS was one of several Prime Brokers. This basically means the guy who lends money to the speculators. Same as buying a house, you have a down payment that's your money, and then a bank lends you between 115% (boom times) and 30% (safe as houses) of the value of the house. If the house falls in value…

> From what I gather, Archegos had $10B of equity in total? Typically (sensibly) you don't put all your eggs in one basket as a fund, even a quite concentrated fund. It was $20B. Hwang's whole schtick from the outset of his family office was to hyper lever up on high growth companies. By doing this he went from $1B to $20B of actual capital in about 2 years. Then he blew up spectacularly because he was levered up abo…

Personally I don’t understand why so many people are blaming Hwang and Archegos. He lost his own money and the money of the banks who gave him leverage _without_ a proper risk assessment. I haven’t seen any claims that Hwang lied to the banks and it’s the banks’ job to do due diligence and apply sane risk management practices.

Re: Credit Suisse Takes $4.7B Hit on Archegos Meltdown

#75

Post by lordnacho » Tue, Apr 06, 2021, 5:49 PM UTC

occamrazor wrote: post #74

fractionalhare wrote: post #39

Earlier quoted context omitted.

> From what I gather, Archegos had $10B of equity in total? Typically (sensibly) you don't put all your eggs in one basket as a fund, even a quite concentrated fund. It was $20B. Hwang's whole schtick from the outset of his family office was to hyper lever up on high growth companies. By doing this he went from $1B to $20B of actual capital in about 2 years. Then he blew up spectacularly because he was levered up abo…

Personally I don’t understand why so many people are blaming Hwang and Archegos. He lost his own money and the money of the banks who gave him leverage _without_ a proper risk assessment. I haven’t seen any claims that Hwang lied to the banks and it’s the banks’ job to do due diligence and apply sane risk management practices.

I think it's more an awe for the scale of capital destruction.

In the end this isn't a domino that topples the whole financial system, risk was taken by a guy who had money, and banks who are capitalized to lose money now and again.

Re: Credit Suisse Takes $4.7B Hit on Archegos Meltdown

#76

Post by mensetmanusman » Tue, Apr 06, 2021, 6:01 PM UTC

mannykannot wrote: post #33

lordnacho wrote: post #13

As a former fund manager, I have some things to explain and some things to ask. First, the thing to explain: Basically CS was one of several Prime Brokers. This basically means the guy who lends money to the speculators. Same as buying a house, you have a down payment that's your money, and then a bank lends you between 115% (boom times) and 30% (safe as houses) of the value of the house. If the house falls in value…

According to Matt Levine, Archegos's positions in sevaral companies was large enough that it had, by its own actions, significantly driven up their prices. The bubble burst when one of these companies - ViacomCBS - issued new stock with the intent of capturing more of this sudden interest, and sales of the offering fell way short of expectations.

It would be hilarious if it was Viacom’s unexpected new greed that sparked the ensuing “bank run” by the bankers, ha

Re: Credit Suisse Takes $4.7B Hit on Archegos Meltdown

#77

Post by SkyMarshal » Tue, Apr 06, 2021, 6:05 PM UTC

minikites wrote: post #60

xyst wrote: post #54

Earlier quoted context omitted.

dont worry - the us will bail them out like we did in 2008 when they directly caused the housing market crash. it's priced in at this point. there is no such thing as accountability in the finance industry anymore. Make bad decisions, get bailed out. All of them are moral hazards.

Not bailing them out would be ruinous for the economy, which therefore means they must be heavily regulated. This half-implemented system of privatized gains and socialized losses is not sustainable.

There are other alternatives between allowing the economy to collapse and bailing out Wall Street.

One proposed by a Harvard Professor during the GFC was to create an Economic Development Bank of the US, seed it with the TARP money instead ($700B), and give it the mandate of financing productive growth activities (as opposed to asset speculation or consumption). The money multiplier effect implies that $700B could multiply into $7T worth of liquidity injection into productive growth activities.

Another similar model is the Japanese post-WWII industrial development model, where a central bank or Ministry of Finance finances local regional banks as they support rebuilding and industrialization of their local economy. Google the economist Richard Werner for more on this model.

All this can be done while letting big Wall St. banks fail and taking them into receivership similar to the S&L crisis. There is precedent for all of this, it’s nothing new. And certainly more options than Wall St. self-servingly presents.

Re: Credit Suisse Takes $4.7B Hit on Archegos Meltdown

#78

Post by tim333 » Tue, Apr 06, 2021, 6:55 PM UTC

ethbr0 wrote: post #57

mannykannot wrote: post #33

Earlier quoted context omitted.

According to Matt Levine, Archegos's positions in sevaral companies was large enough that it had, by its own actions, significantly driven up their prices. The bubble burst when one of these companies - ViacomCBS - issued new stock with the intent of capturing more of this sudden interest, and sales of the offering fell way short of expectations.

In insane scenarios like this, is there anything preventing a company from issuing new stock, waiting for the price drop from liquidating major holders, and buying back an equivalent amount?

There's a bit of a lag while they file paperwork to issue the new stock.

Re: Credit Suisse Takes $4.7B Hit on Archegos Meltdown

#79

Post by yellowstuff » Tue, Apr 06, 2021, 6:56 PM UTC

andys627 wrote: post #61

Who took the other side of this bet? Ie who made 4.7b?

This wasn't really a two sided bet, Archegos bought a lot of stock and essentially borrowed a massive amount of money to buy even more stock, then the stock lost value.

If Company X is worth $60B on Monday and $40B on Tuesday then some people who were short could make a lot of money, but in general $20B of value has been destroyed and the world is poorer on Tuesday.

Re: Credit Suisse Takes $4.7B Hit on Archegos Meltdown

#80

Post by fractionalhare » Tue, Apr 06, 2021, 7:45 PM UTC

occamrazor wrote: post #74

fractionalhare wrote: post #39

Earlier quoted context omitted.

> From what I gather, Archegos had $10B of equity in total? Typically (sensibly) you don't put all your eggs in one basket as a fund, even a quite concentrated fund. It was $20B. Hwang's whole schtick from the outset of his family office was to hyper lever up on high growth companies. By doing this he went from $1B to $20B of actual capital in about 2 years. Then he blew up spectacularly because he was levered up abo…

Personally I don’t understand why so many people are blaming Hwang and Archegos. He lost his own money and the money of the banks who gave him leverage _without_ a proper risk assessment. I haven’t seen any claims that Hwang lied to the banks and it’s the banks’ job to do due diligence and apply sane risk management practices.

I don't personally have any skin in the game, but of course I blame him for losing his money. It's his fault, who else would I blame? Pretty cut and dry case of terrible risk management here. What seems controversial?

Nobody held a gun to his head and told him to load up crazy leverage on a highly concentrated basket of equities... And the banks that lent him money didn't have transparency as to his leverage elsewhere.