What Credit Suisse and Three Arrows have in Common

This article comes fromCD, Original Author: David Z. Morris

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Credit Suisse copied Sanjian Capital's "Show Operation"?

An analyst from Jefferies, a well-known Wall Street investment bank, also expressed the same view in an interview. If Credit Suisse wants to get out of the predicament, it needs to raise at least 9 billion Swiss francs (about 9 billion US dollars) in the next two to three years. So Credit Suisse had no choice but to either sell assets or issue new shares.

If we want to trace how Credit Suisse went to the abyss step by step, we have to mention the Archegos liquidation financial risk event that Credit Suisse was involved in last year. Credit Suisse, one of the prime brokers for the Archegos fund, has been hit the hardest, taking a $4.7 billion write-down as of last year's quarterly results. Frankly, Archegos is a nominal "hedge" fund at best, as it doesn't appear to be really hedging, much less basic risk management. In fact, the fund's trading strategy is very simple, that is, select the target, use huge leverage (that is, debt) to buy blue-chip stocks on a large scale, and then pull up and sell them. However, due to the fall in the stock price, Archegos was unable to support its position, resulting in liquidation, and its position of 15 billion US dollars was liquidated. Coupled with the high leverage of about 3-4 times, the nominal risk exposure of Archegos was pushed up to 80 billion US dollars, and finally They had to declare bankruptcy in March 2021.

Data show that Archegos' heavy holdings were sold for a total amount of 20 billion US dollars, while Credit Suisse alone suffered a huge loss of 5.5 billion US dollars, becoming the biggest loss among several banks. Arguably, it was the huge loans made by these banks that fueled Archegos' foolish strategy, except that other banks, including Goldman Sachs, reacted more quickly and started reducing their exposure earlier, getting out of the market faster than Credit Suisse. dilemma.

This wave of operations sounds a bit familiar. Yes, Credit Suisse is exactly the same as "Three Arrows Capital", one of the largest hedge funds in the cryptocurrency market before, because the encrypted lending service provider that Three Arrows Capital holds shares in has basically the same trading strategy for Bitcoin and other encrypted assets, but now The crypto hedge fund "top stream" has also fallen after wiping out about $10 billion through leveraged strategies.Using a small portion of assets to boost a balance sheet is an effective strategy, but tragedy happens when you do have to sell ballooning assets and no one takes them.

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What can we learn from Three Arrows and Credit Suisse?

Compared with the tragic ending of Three Arrows Capital, Archegos is even worse. Its management faces multiple charges of fraud and participation in market manipulation. Its founder Bill Hwang will eventually escape the law.Three Arrows Capital is considered the largest fund in the crypto space, and Archegos is just one of many funds in the traditional financial space. However, there are some similarities between the two companies that are worth noting. The first is that the amounts involved are strikingly similar; the second, more important, is that

In the last decade, seemingly savvy investors would have no brains to invest in "crazy patients" who operate cryptocurrencies.

What is speechless is that after the fact, the investigation found that every wrong decision of Credit Suisse was due to its management incompetence, not "fraud or illegal conduct". Of course, according to the standards of the upper class, this may still be a plus. But remember, we're talking about bankers here, and it's frankly better to be a liar than a fool.

To be honest, some global investment banks may only be glamorous on the outside, but their internal operations are not as good as imagined. For example, Deutsche Bank and HSBC are called "money laundering factories", and Goldman Sachs is even considered a "ruthless vampire squid". . But if it is a global bank, I believe they will still choose the profit-seeking Goldman Sachs and Deutsche Bank as models instead of the incompetent and chaotic Credit Suisse.

Speaking of the black history of Credit Suisse, there are too many to count, and it is impossible to detail them here. At the same time that it fell into the pit of Archegos, it was also involved in another alleged fraud case, that of Greensill Capital, a British supply chain finance company. Credit Suisse, which backed Greensill Capital, lost $1.72 billion after it collapsed. Not only that, in just a few years, Credit Suisse has also been investigated for tax fraud and suspected money laundering, including a case in which a star employee of the company was suspected of defrauding the former Prime Minister of Georgia of 800 million US dollars. In addition, Credit Suisse has been accused of spying on its own employees, coupled with chaotic management and scandals, which led to the resignation of a chief executive in 2020.