Banking giant Credit Suisse has laid off two senior executives after suffering billions of pounds in losses following the collapse of the Archegos hedge fund and British financial firm Greensill.
Brian Chin, CEO of the investment bank, and Lara Warner, chief risk and compliance officer, both announced that they would step down in a case that affected at least five other senior executives as the bonuses to all top executives for the year and the year were withdrawn dividend cut.
Credit Suisse said it would lose a staggering £ 3.4 billion ($ 4 billion) in the collapse of Archegos, a hedge fund owned by billionaire Bill Hwang that has suffered “the greatest loss of personal wealth in history”. .
Meanwhile, Greensill’s collapse could generate an additional £ 2.53 billion ($ 3.5 billion) in losses, adding up to a total hit of £ 5.4 billion ($ 7.5 billion) according to an analysis by JP Morgan Billion USD). Credit Suisse has forecast a first quarter loss of £ 690 million (US $ 960 million) for all businesses.
The Greensill collapse made unwanted headlines for former Prime Minister David Cameron, who was a paid lobbyist for the company. Texts have surfaced in which he tried to convince Chancellor Rishi Sunak to give the company access to a state-supported Covid loan program.
It was recently reported that he contacted the Treasury Secretary of the Treasury, Jesse Norman, while trying to gain access to Mr. Sunak.
Lara Warner, (left) Chief Risk and Compliance Officer, is one of the executives to be expelled from Credit Suisse after the bank reported bumper losses due to two corporate failures. Brian Chin, CEO of the investment bank (right), is also stepping down
Who is Lara Warner? The soaring Australian and American was once touted as the next CEO
Warner has been Chief Risk Officer at Credit Suisse since 2019, before being promoted to Chief Risk and Compliance Officer last year as part of a Board of Directors change.
Given her role in identifying and managing risks to the bank’s profitability, she will bear some responsibility for not realizing issues with Archegos and Greensill before they collapsed, which cost her company millions.
In 2017, she was one of three senior executives to receive a total compensation package of £ 54 million.
The 52-year-old, who holds a Bachelor of Science degree from Pennsylvania State University, served as a stock researcher with Lehman Brothers before moving to Credit Suisse in 2002.
The move meant she missed Lehman’s bankruptcy in 2008, which is considered to be one of the key moments of the Great Recession.
In 2019 she was touted by Financial News as a possible successor to CEO Tidjane Thiam. The profile praised her role in introducing capital controls into Credit Suisse’s trading department and being the first woman to join the company’s board of directors.
The Australian, the first woman to join the group’s board of directors, has helped challenge the bank’s behavior and culture and conduct a review of a historic sexual assault case.
Officials said Christian Meissner will be appointed head of the investment bank on May 1, Joachim Oechslin as interim chief risk officer and Thomas Grotzer as interim global head of compliance.
“The substantial loss in our Prime Services business due to the failure of a US-based hedge fund is unacceptable,” said Thomas Gottstein, CEO of Credit Suisse, in a statement.
‘Serious lessons are learned. Credit Suisse remains an impressive institution with a rich history. ‘
Archegos fell apart late last month when its debt-laden bets on stocks of certain media companies dissolved.
Credit Suisse and other banks that acted as brokers for Archegos had to endeavor to sell the stocks they held as collateral and to do business.
For Credit Suisse, the Archegos episode came just weeks after the death of another major client – the British finance company Greensill.
Credit Suisse had marketed funds that financed Greensill’s operations. Warner’s role continued to be scrutinized after that company collapsed.
‘Obviously, heads are rolling. After any type of explosion, there is always tighter control, ”said Jason Teh, chief investment officer at Vertium Asset Management in Sydney.
Credit Suisse has lost a lot of money and its share price will find it difficult to recover, said Teh.
“In the short term (the stock) is not going to go up even if everything is declared because you still need to grow earnings.
“Basically, they’ve lost revenue and they’re not going to get it back until they find another way to get it.”
Credit Suisse’s share price fell by a quarter in the past month as investors assess the damage to the bank’s bottom line and credibility and overshadow an otherwise strong start to the year.
Hwang, a former Tiger Asia manager, got into trouble after a share sale in media company ViacomCBS Inc. on March 24th.
Credit Suisse said it would lose a staggering £ 3.4 billion to the collapse of Archegos, a hedge fund owned by billionaire Bill Hwang. The London headquarters are pictured
Brian Chin: “Nice guy,” an American manager who oversaw the Credit Suisse investment bank
Chin, 42, had only been CEO of Credit Suisse’s investment bank since August last year before ignoring recent losses.
He joined the company in 2003 from Deloitte, where he was Senior Analyst on the Securitization Transaction Team.
He previously worked at PricewaterhouseCoopers and the US Attorney’s Office after earning an accounting degree from Rutgers University.
In 2017, senior Credit Suisse insiders told eFinancialNews that Chin was “a really great guy.”
Another said, “He’s very personable and charismatic and is the kind of leader people would follow on hot coals. His style is all about trust, loyalty, and camaraderie, and people really respond to that. ‘
Recent records show that he received tens of millions of dollars’ worth of stock options as part of his annual compensation package.
Archegos has been heavily exposed to ViacomCBS, according to sources, and the decline in inventory set off alarm bells among its banks, urging the fund to provide more collateral.
When the company couldn’t meet demand, banks began selling the collateral, which included shares in Baidu Inc and Tencent Music Entertainment Group.
The Greensill collapse has embroiled former Prime Minister David Cameron, whose lobbying work on the company’s behalf has been scrutinized.
It was recently reported that the ex-prime minister contacted Treasury Secretary of the Treasury, Jesse Norman, while trying to gain access to Chancellor Rishi Sunak.
Norman was better known to Cameron, having served as a political advisor on Downing Street since 2013 and having served in the House of Commons since the coalition government began in 2010, The Times reports.
The revelations from Cameron, who has been in touch with Norman, raise further questions about the level of lobbying across government the former prime minister pursued on behalf of Greensill – which collapsed in February.
At that point he was serving as senior advisor to the company, with stock options valued at around £ 43 million ($ 60 million).
Norman was not responsible for the coronavirus support programs but played an important role in the Treasury’s overall response to the pandemic as a minister in charge of HM Revenue & Customs.
Sunak said he was contacted by Cameron, who also contacted senior tax officials and the Bank of England, reports say.
Greensill representatives are believed to have had ten interviews with senior finance officials between March and June 2020 to gain access to the Bank of England’s loan program.
Sources have alleged that when Greensill was told he was not eligible for the program, Cameron contacted Norman and Sunak directly to expand the rules.
The Greensill collapse has sparked unwanted headlines for former Prime Minister David Cameron (left), who was a paid lobbyist for the company founded by Lex Greensill (right) and received his CBE.
Both Norman and Sunak referred the matter to officials and the decision was not changed.
Earlier this week, Sunak broke his silence over the Cameron lobby series with one blow at the former Tory prime minister.
He didn’t deny that Mr Cameron contacted him directly to raise millions of Covid aid money to bail out financier Greensill Capital before it went broke.
In a cutting comment, he added, “It is important that all people, prime ministers or anyone else, follow the rules and guidelines that we have established for lobbying.”
He defended the Treasury Department’s right to speak to “stakeholders” but added that the department “ultimately rejected the proposal” to intervene to help Greensill, who collapsed earlier this year.
Mr Cameron was acquitted of lobbying rule violations last week following an investigation by advisor lobbyist registrar Harry Rich – a position set out in legislation passed by Mr Cameron’s government in 2014.
Labor has called for an investigation. Shadow Cabinet Secretary Rachel Reeves said: “Taxpayers deserve to know the true extent of the government’s access to Greensill Capital through the former Conservative Prime Minister.
“Conservatives cannot always ignore David Cameron’s behavior and need to get a grip on cronyism at the heart of government.”
Mr. Cameron’s office was requested to comment.
Behind the Archegos Collapse: How the company’s founder suffered “one of the greatest losses of personal wealth in history”
By Martin Gould for Dailymail.com
For a multibillionaire, Archegos founder Bill Hwang’s life is humble.
Sure, his 6,400-square-foot home is gorgeous in every way, but it is dwarfed by those of its neighbors.
His black Mercedes CLK smells of class, but the $ 325,000 orange McLaren 720S rushing out of the driveway of the house across the street has nothing to offer.
He sent his daughter Joanne to Fordham University in the troubled Bronx, a good private school but no Harvard, Yale or Stanford.
By last month, 58-year-old Hwang was one of the richest people in America, with a massive $ 10 billion fortune that hardly anyone knew about.
Now his world has been ruined and through a series of catastrophic misjudgments he has lost everything.
Bill Hwang, real name Sung Kook Hwang, was spotted outside his home in Tenafly, New Jersey, Tuesday when New York firm Archegos Capital Management collapsed last month
The multibillionaire, pictured in an undated photo with his wife Becky and their daughter, saw his entire fortune wiped out after his company defaulted on margin calls last month
Hwang and his wife Becky, 54, live quietly in an affluent, mostly Asian area of Tenafly, New Jersey, a half-hour drive from his 38th-floor office on Manhattan’s 7th Avenue
Hwang’s New York-based company is at the center of the crisis that caused stocks of major investment banks Nomura and Credit Suisse to tumble after issuing profit warnings when Archegos defaulted on margin calls last month.
His fall has upset the international money markets. Two international banks are forecasting huge losses and it will be months before the full effects of Hwang’s mistakes are seen. Overall, banks are expected to lose around $ 6 billion worldwide.
Hwang – real name Sung Kook Hwang – has an eventful history. The phenomenal success was followed by a shame when he paid $ 44 million for insider trading.
This resulted in Wall Street blacklisting him, but slowly and surely, as his financial successes piled up, he worked his way back into the good sides of the banks and one by one they started doing business with him .
Now you may wish you hadn’t.
Hwang is the epitome of the American immigrant success story. His father was a Korean pastor who came to the United States as a child. For a while, his mother was a Christian missionary in Mexico.
Hwang, who holds a business degree from UCLA and Carnegie Mellon, has his Christian faith up his sleeve.
Before the fiasco, very little was known about Hwang, despite being one of the richest people in the country. He is the son of a Korean preacher and had spoken about his Christian faith on social media and in interviews
Hwang seems to have his Christian faith up his sleeve. In a 2018 interview (above), he explained how his religion affected his business practices
Hwang and his wife bought their new 400-square-foot home for $ 3.5 million in 2008
“When we start good businesses through God-allowed capitalism, it makes people’s lives better,” he said in a 2019 video posted online. “God delights in these things.”
In another video, this time for the Fuller Foundation, he said, “It’s not just about money. God certainly has a long-term perspective. It really helps a lot of people to learn how to invest well and use capitalism to advance human society. ‘
He even said his large stake in the social media group LinkedIn isn’t just about making money.
LinkedIn is about helping people achieve their professional potential. Do i think god loves it? Sure.
“I’m like a little kid thinking where can I invest to please our God?
Do you remember Jesus said, “My father works, that’s why I work?” So God works, Jesus works and I work.
“And I won’t be retiring until he pulls me out.”
He claims to read the Bible three hours a week and says it takes about 85 hours from cover to cover.
Hwang, who has managed approximately $ 10 billion in family funds through Archegos, is known to use above-average leverage to increase its bets in the American, European and Asian markets
Archegos Capital Management is based in this office on 7th Avenue in Midtown Manhattan
“Some books last three minutes, psalms about six hours,” he said in a YouTube video praising the virtues of reading the Bible together.
He rarely makes contacts.
“Even on Wall Street, few noticed it,” reported Bloomberg Wealth. “Until suddenly everyone did.”
Hwang and his wife Becky, 54, live quietly in an affluent, mostly Asian area of Tenafly, New Jersey, a half-hour drive from his 38th-floor office on Manhattan’s 7th Avenue. They bought their home new in 2008 for $ 3.5 million.
They have a 22-year-old daughter, Joanne, who graduated from Fordham last year and now works as a graphic designer in New York.
He has a charity, the Grace and Mercy Foundation, with $ 590 million assets on tax filings.
He donated $ 20 million in Amazon stock to the charity last year, which gave him a huge tax break.
He has also handed over a million Netflix shares as well as smaller amounts of shares on Facebook, Hawaiian Airlines, and Expedia.
In 2013, Hwang turned his fund into a family office and renamed it Archegos Capital Management to manage his private wealth. As a family office, Archegos is not required to register with the SEC – even though the company has billions of euros in publicly traded US companies
From 2007 to 2018, his foundation distributed nearly $ 80 million, according to Forbes, with amounts increasing steadily over time. Most of it went to Korean Christian purposes.
Bill Hwang began as a stock seller for Hyundai Securities in the 1990s and then worked for legendary investor Julian Robertson at Tiger Management, where he became one of its so-called Tiger Cubs.
88-year-old Robertson said he was “very sad” about the fall of his acolyte.
“I’m a huge fan of Bill and it could probably happen to anyone. But I’m sorry it happened to Bill. ‘he told Business Insider on Monday.
Hwang founded Tiger Asia Management with $ 25 million from Robertson and raised the fund to $ 5 billion. But then it collapsed when he was accused of insider trading in 2012.
Wall Street would not work with him for many years after he agreed to pay fines of $ 44 million and shut down his company.
Then he started his private investment firm Archegos Capital Management, and his stock-picking genius convinced the banks that he could no longer be ignored and they started doing business with him again.
The last to surrender was Goldman Sachs, who only agreed to work with him again last year after bankers hired the company’s risk department.
They found that Archegos, under Hwang’s leadership, had grown from a fortune of $ 200 million when he founded it in 2012 to over $ 10 billion – an increase of 4,900 percent – and they claimed the reward was worth the risk.
What is a margin call?
A margin call is when a bank asks a customer to provide more collateral when a trade partially financed with borrowed money has depreciated significantly.
If the customer cannot afford this, the lender sells the securities in an attempt to recoup the amounts owed.
In this case Archegos Capital is said to have defaulted on margin calls.
How wrong they were.
Goldman and Morgan Stanley had to sell more than $ 20 billion in Hwang’s holdings on Friday alone in what was known as the “fire sale” and “biggest sell-off in ten years”.
Three other banks, Credit Suisse, Japanese giant Nomura and UBS, continue to dump. Credit Suisse shares fell 16 percent, Nomura 16.3 percent, due to misjudgments by Hwang.
Credit Suisse said its loss could “be very significant and material to our first quarter results”. Nomura expects a loss of $ 2 billion.
Archegos spokeswoman Karen Kessler said in a statement: ‘This is a challenging time for the family office of Archegos Capital Management, our partners and employees. All plans are discussed while Mr. Hwang and the team determine the best way forward. ‘
Hwang controlled the so-called “family office”, an asset management business aimed only at one person of ultra-high value.
That person was Hwang himself.
The problem was that Hwang was investing in a relatively limited number of companies, several of which were struggling at the same time.
Topping the list was ViacomCBS, the broadcasting network’s parent company, whose shares had jumped from $ 12.79 in March last year to over $ 97 a year later. But then it issued millions of new shares to pay for CBS’s planned streaming service, and the share price plummeted more than 50 percent.
Another media company, Discovery Communications, saw a similar rise and fall – from $ 19.27 in October to a high of $ 77.27 five months later, then falling to just over $ 41.
Credit Suisse and Nomura now have billions in losses as Hwang’s company has defaulted on margin calls and investors are clear on who else might have been caught
A streaming service is also planned, but investors believe Netflix, Amazon Prime, and Disney + have such a head start in this area that newbies will struggle to make a profit.
A handful of Chinese companies also got into trouble, and suddenly Archegos couldn’t find any more money to meet the banks’ demands for more collateral – and the gig was over.
Together, the banks had loaned Archegos tens of billions of dollars and collected massive bonuses for a select few bankers. “Greed exceeded fear,” said one investment banker.
Bloomberg Wealth called Hwang’s wealth “one of the greatest hidden fortunes in the world”.
And Mike Novogratz, a former Goldman Sachs partner who has been trading since 1994, described Hwang’s fall as “one of the greatest losses to personal wealth in history.”