The chairman of the Senate banking committee, Massachusetts Senator Sherrod Brown, has asked big banks including Credit Suisse about their ties to the now-collapsed hedge fund Archegos Capital Management.
Brown said he was “troubled, but not surprised,” by news reports that Archegos “entered into risky derivatives transactions facilitated by major investment banks, resulting in panicked selling of stocks worth tens of billions of dollars and those banks collectively losing nearly $10 billion.”
He said the Archegos situation is similar to past failures of hedge funds Long-Term Capital Management and Amaranth Advisors and “demonstrate the hazards to market stability and investor confidence when excessive leverage is combined with careless risk taking.”
Brown’s statement included a letter to Credit Suisse specifically. The European lender was one of several prime brokers that conducted a margin call on Archegos, and said this week it expects to take a $4.7 billion charge to first-quarter profit after a US-based hedge fund failed to meet its margin requirements.
By April 22, Brown wants to know from Credit Suisse about its involvement in the debacle. He’s seeking details such as “the services offered to family offices through your prime brokerage or similar divisions,” and for identification of “the broker-dealer, bank, and other entities, directly or indirectly, involved in transactions with Archegos and that participated in the margin call and resulting stock sales.”
Archegos borrowed from a number of banks to buy stocks, amassing leveraged positions in a handful of US media and Chinese tech names. The fund blew up after positions in stocks such as ViacomCBS, Tencent, and Baidu soured and its lenders demanded it put up more cash as collateral against its bets.