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Archegos was too busy for margin calls

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Re: Archegos was too busy for margin calls

#21

Post by TuringNYC »

lordnacho wrote: post #16

Former fund manager here. Wow, this is really interesting. So CS actually knew what risk it was taking, the hypothesis that Archegos had kept its positions private from several lenders is false. They knew what was going on and couldn't ask for more margin, and when they did without a response they couldn't get themselves to just close out the customer's positions. The problem is actually one of internal incentives, f…

I'm speaking about this at a conference next week. Here is the MONEY QUOTE from Paul Weiss investigative report:

>>> ...further, the various Risk Committees only had access to data that were four to six weeks old.

As a consequence, Risk was unaware of, and unable to fully appreciate in real time, the magnitude and pace of the exponential growth in Archegos’s positions... Ref: https://www.credit-suisse.com/about-us/en/reports-research/a...

I'd like to also point out that unlike the 2008 crisis with margin calls which were highly subjective based on difficult projections of housing prices and defaults and correlations (think AIG-FP), here, these were pretty simple equity swaps. Valuing these assets is not difficult

Re: Archegos was too busy for margin calls

#22

Post by gopher_space »

lordnacho wrote: post #16

Former fund manager here. Wow, this is really interesting. So CS actually knew what risk it was taking, the hypothesis that Archegos had kept its positions private from several lenders is false. They knew what was going on and couldn't ask for more margin, and when they did without a response they couldn't get themselves to just close out the customer's positions. The problem is actually one of internal incentives, f…

> The problem is actually one of internal incentives, from my reading.

It looks a lot more like a feature of those incentives. Functionally the risk persons job is to tell gambling addicts "I dunno guys, looks too juicy. High rollers only."

To paraphrase Sinclair: It's difficult to get someone to employ second-order thinking when his salary increases dramatically and there's no real downside if he doesn't.

Re: Archegos was too busy for margin calls

#23

Post by lotsofpulp »

CydeWeys wrote: post #17
lordnacho wrote: post #16

Former fund manager here. Wow, this is really interesting. So CS actually knew what risk it was taking, the hypothesis that Archegos had kept its positions private from several lenders is false. They knew what was going on and couldn't ask for more margin, and when they did without a response they couldn't get themselves to just close out the customer's positions. The problem is actually one of internal incentives, f…

Can you expand some of these acronyms? CS, PB, etc.? I'm guessing most of us won't know them. CS=Credit Suisse, PB=Personal Banking, FX=Foreign Exchange?

PB is prime brokerage

https://en.wikipedia.org/wiki/Prime_brokerage

CS is Credit Suisse, and FX is foreign currency trading.

Re: Archegos was too busy for margin calls

#24

Post by [deleted] »

baq wrote: post #3

> Notably, this is not a situation where the business and risk personnel engaged in fraudulent or illegal conduct or acted with ill intent. Nor is it one where the architecture of risk controls and processes was lacking or the existing risk systems failed to operate sufficiently to identify critical risks and related concerns. The Archegos risks were identified and were conspicuous. The persistent failure of he busin…

[deleted]

Re: Archegos was too busy for margin calls

#25

Post by Dlanv »

vmception wrote: post #5

If you’ve ever traded with anything better than Reg-T margin, you know this whole system is ripe for implosion. The leverage is insane! Reg-T (like the kind Robinhood has) doesn’t allow long options to be bought on margin. Other margining systems allow as low as 6% down even on options. And when you’re talking real money, your personal risk/compliance team understands their employment is contingent on looking the oth…

Can individuals access that sort of margin?

The best I've seen is portfolio margin at some brokers.

What's the name of the "margining systems" you are referring to?

Re: Archegos was too busy for margin calls

#26

Post by fny »

Can someone provide color as to why this was such a discretionary process? If I get a call from my broker, and I don’t post collateral, I’m liquidated immediately. I’d at least expect a fixed date which triggers liquidation if you catch someone picking their nose.

Also, I find it hilarious that this whole thing was bound to blow up after the recent Chinese regulatory crackdown anyway.

Re: Archegos was too busy for margin calls

#28

Post by dang »

arthurcolle wrote: post #13
dang wrote: post #11

We changed the URL from https://www.credit-suisse.com/media/assets/corporate/docs/ab... , which is one of those annoying links that downloads a file, and the title from "Postmortem in finance: How Credit Suisse lost $6B [pdf]", which was editorialized. (Please read the site guidelines! https://news.ycombinator.com/newsguidelines.html ) A user suggested the Levine article as a better alternative, so we'll use that for…

How is a browser downloading an html file any different than requesting a PDF other than size? If anything it's useful to be able to pop it over into the Documents app and read later. I guess it's not responsive but to be honest that's a feature not a bug lol. I guess the editorial concern is the bigger issue.

geofft has it - I wasn't saying pdfs were annoying, but rather that it's annoying to click on a pdf (or html or anything else) and have it save something to my hard drive rather than displaying the damn thing. First, I want to see it, not save it; and second, I want to decide for myself what to save locally. Anyhow, no big deal! just a pet peeve

Re: Archegos was too busy for margin calls

#29

Post by dang »

SkyMarshal wrote: post #14
dang wrote: post #11

We changed the URL from https://www.credit-suisse.com/media/assets/corporate/docs/ab... , which is one of those annoying links that downloads a file, and the title from "Postmortem in finance: How Credit Suisse lost $6B [pdf]", which was editorialized. (Please read the site guidelines! https://news.ycombinator.com/newsguidelines.html ) A user suggested the Levine article as a better alternative, so we'll use that for…

A little hopefully constructive feedback: 1. The original link was to the source, which I would think would take precedence over a second-party review of it, even a skilled one like Levine's. 2. The source's actual title is "Credit Suisse Group Special Committee Of The Board of Directors Report On Archegos Capital Management" . The editorizialized title ""Postmortem in finance: How Credit Suisse lost $6B [pdf]" isn't…

> Maybe if you change a post link from the original source, also link the source back in the comments

The originally posted link is in my GP comment, no?

Re: Archegos was too busy for margin calls

#30

Post by huitzitziltzin »

fny wrote: post #26

Can someone provide color as to why this was such a discretionary process? If I get a call from my broker, and I don’t post collateral, I’m liquidated immediately. I’d at least expect a fixed date which triggers liquidation if you catch someone picking their nose. Also, I find it hilarious that this whole thing was bound to blow up after the recent Chinese regulatory crackdown anyway.

Do you have multiple billions of dollars at stake with the broker?

If yes: he might annoy you enough with his impertinent margin demands that you go elsewhere, which makes his boss Very Unhappy.

If no: his boss has never heard of you.

Also it sounds like liquidating many of these positions would be no easy feat, when they represented 3-5 days mean trading volume in the underlying asset.

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