The independent review found that the Archegos-related losses were the result of a “fundamental failure of management and controls” in Credit Suisse’s investment bank and specifically its prime services business, which provides trading, financing and advisory services to hedge funds and institutional clients.
“The business was focused on maximizing short-term profits and failed to rein in, and, indeed enabled Archegos’s voracious risk-taking,” according to the report, which was based on more than 80 interviews with current and former Credit Suisse employees and more than 10 million documents.
“There were numerous warning signals — including large, persistent limit breaches — indicating that Archegos’s concentrated, volatile, and severely under-margined swap positions posed potentially catastrophic risk to Credit Suisse,” it added.
Despite some individuals raising concerns, risk managers and senior executives, including the global head of equities, failed to heed the warnings. Although no fraudulent or illegal activities took place, there was a “persistent failure” to manage “conspicuous risks,” the report said.
It highlighted a “lackadaisical attitude toward risk” in the prime services business and a “cultural unwillingness to engage in challenging discussions.”
“The Archegos matter directly calls into question the competence of the business and risk personnel who had all the information necessary to appreciate the magnitude and urgency of the Archegos risks, but failed at multiple junctures to take decisive and urgent action to address them,” the report added.
“We are committed to developing a culture of personal responsibility and accountability, where employees are, at heart, risk managers,” he added.
Credit Suisse said that following the Archegos collapse it has “significantly reduced” leverage exposure in the prime services business, increased margin requirements and implemented extra approval processes for “material transactions.”
The more conservative approach to risk is already weighing on its investment bank, which suffered a 41% decline in revenue in the second quarter compared with a year earlier. Credit Suisse on Thursday reported a 78% decline in profit for the period, which follows a loss in the first quarter attributable to Archegos.
CEO Thomas Gottstein said the bank took the Archegos and Greensill events “very seriously” and was “determined to learn all the right lessons.”
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