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Archegos was too busy for margin calls

bloomberg.com

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Re: Archegos was too busy for margin calls

#51

Post by ackbar03 »

snypher wrote: post #48
ackbar03 wrote: post #46

Earlier quoted context omitted.

>Another PB I worked with had a similar issue. A high rolling Gulf guy came in, wanting to do big FX trades on little margin. Risk said no, boss overruled them. Dude blew up, PB lost a lot of capital, boss got fired. I used to work in finance but quit. The industry is still by far driven by mostly by sales/relationships/politics. It seems like in this case the right person got fired. I knew of a trader on a credit de…

Any idea how they got away with this?

I think the generally acknowledged approach if you work on a trading desk at a bank want to put on some trade with desk-blowup potential is you first send out an email to your boss/head-of-desk outlying the trade and targets and stop loss and whatever, even if he sits right next to you. Once he replies in agreement, he's on the hook and you have the evidence. This makes it perfectly reasonable to argue that its the desk head's responsibility to make sure these kind of blowups don't happen. If head of trading also feels that head of desk wasn't exactly a stellar performer anyways, then poof he's gone. It just so happens in this case that they didn't want to replace headcount anyways so the trader next in line, the guy who actually blew the desk up, got promoted. Maybe it was just the bank I worked at but I saw enough of these charades and couldn't take the job seriously anymore. It was too much of a farce for me so I quite Lol, but hey I guess there are people who enjoy playing that game, nothing wrong with that.

Re: Archegos was too busy for margin calls

#52

Post by mannykannot »

satellite2 wrote: post #9
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…

This is common practice in post mortem analysis to try to determine the root cause in a blameless manner. On the next iteration of this issue the eventual culprits of the first probably won't be there to remember what went wrong. What might survive until then though is the set of procedures and guidelines put in place following the investigation recommendations. So it's more effective to determine what process were i…

In cases like this, I doubt you can determine which process were insufficient without noticing which people had the capacity to avoid the problem, yet did not exercise it.

Re: Archegos was too busy for margin calls

#53

Post by naveen99 »

I am surprised there is no conspiracy theory about some third party forcing archegos to blow up on purpose. it would be a convenient way for a secret police or other extra legal group to punish or blackmail a wealthy person while making a little money on the side at the expense of a big bank. I mean billy only put away a few hundred million protected in trusts and charities… do deca billionaires blow up this spectacularly? Doesn’t seem regular to me.

Re: Archegos was too busy for margin calls

#54

Post by dcolkitt »

f0rgot wrote: post #43

My question is, how profitable are these services that they can keep losing money on an implosion here and there and still want to be in that business? I guess if the other 99 PB clients are netting you $10B you can lose some to Malachite Capital Management and Archegos now and then.

It's tough to quantify. It's not just about the PB revenue itself. It's the fact that it's an entry point for a lot of institutional client activity that's necessary for a lot of other lines of business.

For example, investment banking is a very lucrative business. Let's say you're trying to win a big-ticket IPO. To run a credible IPO you need to be able to fill an order book of deep-pocketed, credible public equity investors. That requires having a relationship with these institutions. The primary way those relationships are built is through a prime brokerage business.

Re: Archegos was too busy for margin calls

#55

Post by argonaut »

sooheon wrote: post #47
djanogo wrote: post #42

Earlier quoted context omitted.

The closest for retail customers is IBKR, needs >110k they have lowest margin rates. They approve pretty easily. On other hand Fidelity will reject portfolio margin even if you have significantly more than 100k.

Caveat emptor: IBKR's TOS makes it clear they reserve the right to liquidate your positions at any time for basically any reason, including margin requirement changes.

Every brokerage has those terms. Even Credit Suisse in this article had this right over Archegos's positions - they just were too scared to exercise it.

Re: Archegos was too busy for margin calls

#56

Post by munchler »

naveen99 wrote: post #53

I am surprised there is no conspiracy theory about some third party forcing archegos to blow up on purpose. it would be a convenient way for a secret police or other extra legal group to punish or blackmail a wealthy person while making a little money on the side at the expense of a big bank. I mean billy only put away a few hundred million protected in trusts and charities… do deca billionaires blow up this spectacu…

Hanlon's razor: Never attribute to malice that which is adequately explained by stupidity.

Re: Archegos was too busy for margin calls

#57

Post by stingraycharles »

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…

Yeah, I hate to be pedantic, but there seems to be some disconnect with the actual HN guidelines here:

> Please submit the original source. If a post reports on something found on another site, submit the latter.

https://news.ycombinator.com/newsguidelines.html

Perhaps this rule needs a refreshment?

I agree with dang that the Bloomberg article is more useful than the report itself, but the moderation action does not seem to be in line with the actual guidelines.

Re: Archegos was too busy for margin calls

#58

Post by SilasX »

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?

Just a general suggestion for comments: if you’re going to use abbreviations, it’s probably a good idea to spell them out on the first mention.

Re: Archegos was too busy for margin calls

#59

Post by satellite2 »

mannykannot wrote: post #52
satellite2 wrote: post #9

Earlier quoted context omitted.

This is common practice in post mortem analysis to try to determine the root cause in a blameless manner. On the next iteration of this issue the eventual culprits of the first probably won't be there to remember what went wrong. What might survive until then though is the set of procedures and guidelines put in place following the investigation recommendations. So it's more effective to determine what process were i…

In cases like this, I doubt you can determine which process were insufficient without noticing which people had the capacity to avoid the problem, yet did not exercise it.

That's correct, but unless the investigation determined they acted with malice, they should not be explicitly mentioned.

Re: Archegos was too busy for margin calls

#60

Post by lordnacho »

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?

Apologies, PB is prime broking. It's where the bank offers trade facilitation services, especially lending, to a hedge fund or family office.
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