(Bloomberg) — Credit Suisse Group AG, saddled with billions of dollars in losses from the collapse of Archegos Capital Management last year, is trying to help the U.S. Justice Department potentially build a case related to block trading against rivals Morgan Stanley and Goldman Sachs Group Inc.
The Swiss firm’s push to provide assistance apparently goes beyond banks’ routine cooperation with requests for information, according to people familiar with the matter, who asked not to be identified discussing confidential deliberations. Last week, Credit Suisse’s representatives delivered a presentation to the U.S. Attorney’s Office for the Southern District of New York, flagging potential issues with Archegos’s collapse in March.
No bank was hurt more by the blowup of Bill Hwang’s highly leveraged family office than Credit Suisse, which was left nursing more than $5 billion in losses, a hit that triggered leadership and structural changes. Persuading authorities that other banks acted improperly could help the Zurich-based lender head off regulatory sanctions or even give it a legal edge in recouping some losses.
Representatives for Credit Suisse, Morgan Stanley, Goldman Sachs and the Justice Department declined to comment.
Archegos used banks’ prime brokerages to place outsized bets on stocks that soon soared, giving it gains that allowed it to wager more. When prices started slipping, the firm came under pressure. And when lenders realized it couldn’t post the collateral needed to avoid unwinding the positions, they held emergency talks.
Bloomberg reported last year that Credit Suisse, facing significant exposure, pushed for an agreement to hold off on rapidly unwinding the family office’s portfolio. But the effort failed, and Credit Suisse was caught flat-footed as Morgan Stanley and Goldman Sachs moved faster to extinguish their exposures, setting off further price declines that spelled pain for banks left behind.
ViacomCBS Deal
According to two of the people, Credit Suisse has sought to spotlight transactions involving ViacomCBS Inc., a major Archegos holding. The company — now known as Paramount Global — planned a secondary stock offering, tapping Morgan Stanley to lead the deal.
But before the fundraising closed, the stock started sliding — as did other shares tied to Archegos. They included some U.S.-listed Chinese company stocks, such as GSX Techedu, now called Gaotu Techedu; Vipshop Holdings Ltd. and Tencent Holdings Ltd. Banks soon began demanding more collateral from Archegos to shore up positions, and eventually moved to pull the plug on its portfolio. Morgan Stanley got out with a $911 million loss. Goldman Sachs emerged largely unscathed.
Regulators have opened a wide range of inquiries into the family office’s rise and fall, examining, for example, whether any stock prices were manipulated or banks colluded in their response to the firm’s troubles, people with knowledge of the matter have said. Last week, Bloomberg reported that the incident also led authorities to ramp up an investigation of block trading, a probe that’s been looking in part at whether Wall Street firms have tipped favored clients to transactions big enough to move stock prices.
Authorities haven’t accused anyone of wrongdoing in Archegos’s bust or the block-trading probe.
Credit Suisse is struggling to move past a turbulent year in which a pair of its key relationships, with Archegos and Greensill Capital, blew up spectacularly. Its ensuing exit from the prime brokerage business and reduced tolerance for risk on complex transactions pose significant ramifications for the company’s earnings. The bank’s leaders have said a strategic shift it rolled out in November won’t start to bear fruit until 2023.
Morgan Stanley confirmed in a regulatory filing Thursday that U.S. regulators and prosecutors are investigating “various aspects” of its block-trading business. The firm has been fielding inquiries from the U.S. Securities and Exchange Commission since mid-2019 and from federal prosecutors in Manhattan since August last year, it said, without elaborating. The bank said it’s cooperating with those requests.
(Updates with background on Credit Suisse’s challenges in penultimate paragraph.)
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