The chair of the US Senate banking committee has written to four major banks, including Credit Suisse and Nomura, seeking answers about the implosion of Archegos Capital, in a sign that lawmakers in Washington are ramping up scrutiny of family offices and their lenders.
Sherrod Brown, the Democratic senator from Ohio who chairs the powerful committee, on Thursday sent letters to Credit Suisse, Nomura, Goldman Sachs and Morgan Stanley asking for detailed explanations of their dealings with Bill Hwang’s Archegos and family offices more broadly. Brown gave the lenders two weeks to reply to his request.
“I am troubled, but not surprised, by the news reports that Archegos entered into risky derivatives transactions facilitated by major investment banks, resulting in panicked selling of stocks worth tens of billions of dollars and those banks collectively losing nearly $10bn,” Brown said in his letter to Crystal Lalime, general counsel at Credit Suisse.
“The details and ultimate consequence of Archegos’s failure remain to be seen, but the massive transactions, and losses, raise several questions regarding Credit Suisse’s relationship with Archegos and the treatment of so-called family offices, Hwang’s history, and the transactions that have been mentioned in news reports,” Brown added.
The intervention comes after several big banks warned investors and regulators that they stood to lose billions of dollars from their dealings with Archegos — a family office run by Hwang, a former hedge fund manager — after the firm failed to meet margin calls.
Earlier this week, Credit Suisse revealed a $4.7bn loss tied to the blow-up of Archegos’s trades, higher than earlier estimates. Credit Suisse was one of multiple lenders that acted as a prime broker to Hwang, allowing the family office to make highly leveraged bets on US and Chinese stocks.
Hwang set up the family office in 2013, after shutting Tiger Asia Management, the hedge fund he founded in 2001, in the wake of insider trading allegations and $44m settlement with the US Securities and Exchange Commission. Family offices are more loosely regulated than other investment vehicles, with fewer disclosure requirements.
Brown is the latest senior official seeking answers about the breakdown of Archegos.
Regulators, including the SEC and the UK’s Financial Conduct Authority have requested information from the banks involved. Finra, Wall Street’s self-regulatory body, has also contacted the lenders.
Other lawmakers on Capitol Hill have raised concerns about the situation, too. Elizabeth Warren, a Democratic senator from Massachusetts and vocal advocate for tighter financial regulations, told CNBC that the blow-up of Archegos had “all the makings of a dangerous situation — largely unregulated hedge fund, opaque derivatives, trading in private dark pools, high leverage, and a trader who wriggled out of the SEC’s enforcement”.
“Regulators need to rely on more than luck to fend off risks to the financial system: we need transparency and strong oversight to ensure that the next hedge fund blow-up doesn’t take the economy down with it,” she added.