Central Bank closely monitoring Archegos shock at Credit Suisse

The Central Bank of Ireland is closely monitoring Credit Suisse’s multibillion-dollar exposure to the collapse of a US hedge fund, Archegos Capital Management, and is liaising with other regulators, sources say.

It will need to be determined whether Credit Suisse’s blue-chip brokerage business in Dublin, established in 2016 to lend stocks and money to hedge funds and settle transactions for them, played a role in the transactions with Archegos which prompted the Swiss group to issue a profit warning. Monday.

The Irish business was created in 2016 as a branch of the regulated and Zurich-based group, becoming the first bank outside the European Union to benefit from a change in Irish law in 2013. Before that, non-European banks had to to establish wholly-owned subsidiaries in the Republic which were directly regulated by the Central Bank of Ireland.

A spokesperson for the Central Bank and spokesperson for Swiss financial regulator Finma declined to comment, while a spokesperson for Credit Suisse did not respond to a request for comment on Irish affairs.

“Significant losses”

Credit Suisse and Japanese bank Nomura told shareholders on Monday they faced “significant losses” as a number of international investment banks caught in the previously little-known Archegos collapse . The company had used the blue-chip brokerage units of these companies to place leveraged bets on a number of US and Chinese stocks via derivatives such as swaps and contracts for difference (CFDs) which enabled to Archegos to avoid having to disclose his position.

Nomura warned of $ 2 billion (1.7 billion euros), while analysts estimated the blow to Credit Suisse could exceed $ 3 billion.

Archegos ran into problems last week when ViacomCBS, the media giant in which the hedge fund had built a large secret position, saw its stock drop 29% in two days after announcing a $ 3 billion stock sale. dollars (2.56 billion euros). This forced the prime brokers to make margin calls for Archegos to place additional liquidity or other collateral to them to offset losses from its leveraged bets.

When Archegos failed to respond to margin calls, investment banks began on Friday to get rid of around $ 20 billion of shares they held, linked to hedge fund loans. The forced sale put further pressure on ViacomCBS stock prices and also saw another media company Discovery, as well as US-listed stocks of Chinese companies Baidu and Tencent Music plunge.

Implosion

Nevertheless, the wider fallout in the market from the liquidation of Archegos’ positions has been relatively contained compared to the implosion of the US hedge fund Long-Term Capital Management in 1998, which prompted the Federal Reserve to cut rates and to coordinate a bailout of the company in its creditors.

CFD instruments at the heart of Archegos transactions attracted considerable attention in Ireland during the financial crisis after the family of the country’s richest man, Seán Quinn, formed an underground 28 percent stake in Anglo Irish Bank between 2006 and 2008 using the products.

Mr Quinn said in court in 2014 that in total his family lost € 3.2 billion on their leveraged investment in Anglo Irish Bank, which was nationalized in 2009 and put into liquidation four years later.

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