Credit Suisse’s Dublin branch avoids Archegos fallout

Credit Suisse's prime brokerage unit in Dublin was not involved in the group's trades with US hedge fund Archegos Capital Management, which collapsed on Friday after stock market bets turned sour, The Irish Times has established.

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 implosion of the previously little-known Archegos.

The firm had used the prime brokerage units of these firms to place leveraged bets on 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.

Sources said on Tuesday that the Central Bank of Ireland was closely monitoring Credit Suisse's multibillion dollar exposure to Archegos and was liaising with other regulatory authorities.

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A source with knowledge of the matter said on Wednesday that Credit Suisse’s Dublin prime brokerage business, which was set up in 2016 to lend shares and cash to hedge funds and settle trades for them, was not involved in providing services to Archegos.

The Irish business was set up 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 also declined to comment.

Media giant

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 in 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.

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

Mitsubishi UFJ Financial said on Tuesday after the market closed in Tokyo that it may suffer losses of about $300 million at its European subsidiary related to an unnamed US client, known to be Archegos.

"Opinion is divided between those who say this is a problem confined to one hedge fund and those who warn of even more losses," Ayako Sera, a market strategist at Sumitomo Mitsui Trust Bank, told Reuters.

The wider market fallout from the liquidation of Archegos position has, for now, been relatively contained compared with 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.