Central Bank closely monitoring Credit Suisse’s Archegos shock

Credit Suisse told shareholders on Monday they are facing ‘significant losses’

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 liaising with other regulators, according to sources.

It will be expected to ascertain whether the Credit Suisse’s Dublin prime brokerage business, set up in 2016 to lend shares and cash to hedge funds and settle trades for them, played any role in trades with Archegos that prompted the Swiss group to issue a profit warning on Monday.

The Irish business was set up in 2016 as a branch of the Zurich-based and regulated group, becoming the first non-European Union bank to take advantage of a 2013 Irish law change. Before then, non-EU banks had to set up full subsidiaries in the Republic that were directly regulated by the Central Bank of Ireland.

A spokeswoman for the Central Bank and spokesman for Swiss financial regulator Finma declined to comment, while a spokesman for Credit Suisse didn't respond to a request for comment on the Irish business.


‘Significant losses’

Credit Suisse and Japanese bank Nomura told shareholders on Monday that they faced "significant losses" as a number of international investment banks were caught up in the collapse of the previously little-known Archegos. The firm had used the prime brokerage units of these firms to place leveraged bets in a number of US and Chinese stocks through derivatives such as swaps and contracts for difference (CFDs) that allowed Archegos to avoid having to disclose its position.

Nomura warned of a possible $2 billion (€1.7 billion), while analysts have estimated that the hit to Credit Suisse may top $3 billion.

Archegos ran into trouble last week when ViacomCBS, the media giant in which the hedge fund had built a large secret position, saw its stock plunge 29 per cent over two days after it announced a $3 billion (€2.56 billion) share sale. This forced prime brokers to make so-called margin calls for Archegos to place additional cash or other collateral with them to make up for the losses in its leveraged bets.

When Archegos failed to meet the margin calls, investment banks started offloading about $20 billion of stocks on Friday that they held, linked to loans the hedge fund. The forced selling prompted further share price pressure in ViacomCBS and also saw another media company Discovery, as well as the US-listed shares of China-based Baidu and Tencent Music plunge.


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

The CFD instruments at the heart of the Archegos trades attracted considerable attention in Ireland during the financial crisis after the family of the country's then richest man, Seán Quinn, built up a clandestine 28 per cent stake in Anglo Irish Bank between 2006 and 2008 using the products.

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

Joe Brennan

Joe Brennan

Joe Brennan is Markets Correspondent of The Irish Times