
In Archegos Aftermath: Questions, Collateral And Bullet Dodgers
Days on from the first position unwinds, there were still (far) more questions than answers around the Archegos blow-up.
Chief among them: What's next for Credit Suisse?
The shares dropped a third session Wednesday. They were down almost 25% in March (figure below). S&P cut its outlook on the bank Tuesday and Moody's followed less than 24 hours later.
March was one of the worst months ever for the stock, and not everyone seems convinced it's a dip worth buying.
Consternation crept into
“1) Goldman got wind of Archegos borrowing with other prime brokers by pledging the same collateral they pledged to Goldman.”
My my my, whodathunkit? There is gambling allowed here?
I doubt that “new knowledge” was behind the decision.
As I wrote yesterday in the comments on “All the Makings of a Dangerous Situation”
“The fundamental problem is that there is no central registry of the leverage being offered to clients. The prime brokers claim that those are “valuable competitive secrets” that cannot be entrusted to the SEC or Fed.
The result? Every firm does its due diligence and credit work on each client without knowing how much the client is borrowing from other street firms. So credit lines get approved on that basis, even though everyone knows full well that the client is getting some amount of credit from other firms. It’s legal and regulatory CYA.”
What are the chances that after dumping Hwang’s assets, GS and JPM bought them back for themselves at the bottom?
For those two, I’d say good to very good.
There is a great deal of history we can refer to here. This is classic material for Michael Lewis. If there are any grownups left, we can identify many repetitive elements here, as well as in Melvin Capital. Remember, FDR chose Joseph Kennedy to clean up the mess. I sense a real lack of input from experienced practitioners whenever we try to understand insane behavior. Partly, because those in the know remain silent. I feel that senators, presidents, etc. don’t know what they don’t know….The banks continue to amaze me- it is incredible how unqualified and sloppy they are. The moral hazard comes from socialization of risk. It’s not a fair fight between regulators and financial groups….