FIN382: Mr. Grey is a non-executive director chairing the audit committee of Playful. He asked your team to investigate: Risk Management for Finance and Technology Assignment, SUSS, Singapore

Mr. Grey is a non-executive director chairing the audit committee of Playful. He asked your team to investigate the Archegos Capital meltdown in 2021, a real-life risk management failure. Mr. Grey wants Playful own a prime brokerage lending business to hedge funds to address all potential risks identified with other banks exposed to Archegos.

Archegos was a family office run by Bill Hwang. This investment company practiced highly leveraged long/short hedge trading strategies. It collapsed after suffering heavy losses. Archegos’ failure also triggered huge losses for several banks that lent to the family office.

Credit Suisse lost over US$5bn after Archegos defaulted on its margin call in March 2021. The bank held 156M shares in Warner Discovery (“Discovery”) since the end of 2020 for the account of Archegos. To recoup its losses, Credit Suisse had to unwind its positions within 2 days in March 2021 by selling the Discovery shares. The normal daily trading volume on Discovery before the Archegos failure was 80M shares. Interestingly, Deutsche Bank held the same number of Discovery shares as Credit Suisse back in December 2020, yet lost no money in March 2021.

As a result of the heavy losses faced by Credit Suisse, the bank conducted a fundamental review of its failure in management and controls. Treasury Secretary Janet Yellen also called the Financial Stability Oversight Council to reconvene the Hedge Fund Working Group after the blowup of Archegos.

• Explain three (3) reasons why Archegos could conceal the risk of its oversized market positions.
• Infer the type of risk that caused Credit Suisse to post losses on the Discovery sell-down.
• Examine the reason why Deutsche Bank has escaped losses and conclude what made a difference compared to Credit Suisse from a risk management perspective.