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Archegos Capital Management

How Credit Suisse Became a Meme Stock

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“Credit Suisse is probably going bankrupt.”

It was Saturday, Oct. 1, and Jim Lewis, who frequently posts on Twitter under the moniker Wall Street Silver, made that assertion to his more than 300,000 followers. “Markets are saying it’s insolvent and probably bust. 2008 moment soon?”

Mr. Lewis was among hundreds of people — many of them amateur investors — who had been speculating about the fate of Credit Suisse, the Swiss bank. It was in the middle of a restructuring and had become an easy target after decades of scandals, failed attempts at reform and management upheavals.

There seemed to be no immediate provocation for Mr. Lewis’s weekend tweet other than a memo that Ulrich Körner, the chief executive of Credit Suisse, had sent employees the day before, reassuring them that the bank was in good financial health.

But the tweet, which has been liked more than 11,000 times and retweeted more than 3,000 times, was one of many that helped ignite a firestorm on social media forums like Twitter and Reddit. The rumor that Credit Suisse was in trouble ricocheted around the world, stumping bank executives and forcing them to call shareholders, trading partners and analysts to reassure them that everything was fine before markets reopened on Monday.

prop up the shares of GameStop, the video game retailer, determined to outsmart hedge funds that had bet the company’s shares would fall.

But what started as a spontaneous effort to take down Wall Street has since become an established presence in the market. Millions of amateur investors have embraced trading, including more sophisticated strategies such as shorting. As the Credit Suisse incident shows, their actions highlight a new source of peril for troubled companies.

Founded in Switzerland in 1856 to help finance the expansion of railroads in the tiny European nation, Credit Suisse has two main units — a private wealth management business and an investment bank. However, the bank has often struggled to maintain a pristine reputation.

It has been the repository of funds from businesspeople who are under sanctions, human rights abusers and intelligence officials. The U.S. government has fined it billions of dollars for its role in helping Americans file false tax returns, marketing mortgage-backed securities tied to the 2008 financial crisis and helping customers in Iran, Sudan and elsewhere breach U.S. sanctions.

In the United States, Credit Suisse built its investment banking business through acquisitions, starting with the 1990 purchase of First Boston. But without a core focus, the bank — whose top bosses sit in Switzerland — has often allowed mavericks to pursue new revenue streams and take outsize risks without adequate supervision.

collapsed. Credit Suisse was one of many Wall Street banks that traded with Archegos, the private investment firm of Bill Hwang, a former star money manager. Yet it lost $5.5 billion, far more than its rivals. The bank later admitted that a “fundamental failure of management and controls” had led to the debacle.

surveillance of Credit Suisse executives under his watch. He left the bank in a stable and profitable condition and invested appropriately across its various divisions, his spokesman, Andy Smith, said.

Credit Suisse replaced Mr. Thiam with Thomas Gottstein, a longtime bank executive. When Archegos collapsed, the bank kept Mr. Gottstein on the job, but he started working with a new chairman, António Horta-Osório, who had been appointed a few months earlier to restructure the bank.

resigned after an inquiry into whether he had broken quarantine rules during the pandemic. But he made swift changes in his short tenure. To reduce risk taking, Mr. Horta-Osório said, the bank would close most of its prime brokerage businesses, which involve lending to big trading firms like Archegos. Credit Suisse also lost a big source of revenue as the market for special purpose acquisition companies, or SPACs, cooled.

By July, Credit Suisse had announced its third consecutive quarterly loss. Mr. Gottstein was replaced by Mr. Körner, a veteran of the rival Swiss bank UBS.

Mr. Körner and the chairman, Axel Lehmann, who replaced Mr. Horta-Osório, are expected to unveil a new restructuring plan on Oct. 27 in an effort to convince investors of the bank’s long-term viability and profitability. The stock of Credit Suisse has dipped so much in the past year that its market value — which stood around $12 billion — is comparable to that of a regional U.S. bank, smaller than Fifth Third or Citizens Financial Group.

appeared on Reddit.

Mr. Macleod said he had decided that Credit Suisse was in bad shape after looking at what he deemed the best measure of a bank’s value — the price of its stock relative to its “book value,” or assets minus liabilities. Most Wall Street analysts factor in a broader set of measures.

But “bearing in mind that most followers on Twitter and Reddit are not financial professionals,” he said, “it would have been a wake-up call for them.”

The timing puzzled the bank’s analysts, major investors and risk managers. Credit Suisse had longstanding problems, but no sudden crisis or looming bankruptcy.

Some investors said the Sept. 30 memo sent by Mr. Körner, the bank’s chief executive, reassuring staff that Credit Suisse stood on a “strong capital base and liquidity position” despite recent market gyrations had the opposite effect on stock watchers.

Credit Suisse took the matter seriously. Over the weekend of Oct. 1, bank executives called clients to reassure them that the bank had more than the amount of capital required by regulators. The bigger worry was that talk of a liquidity crisis would become a self-fulfilling prophecy, prompting lenders to pull credit lines and depositors to pull cash, which could drain money from the bank quickly — an extreme and even unlikely scenario given the bank’s strong financial position.

“Banks rely on sentiment,” Mr. Scholtz, the Morningstar analyst, said. “If all depositors want their money back tomorrow, the money isn’t there. It’s the reality of banking. These things can snowball.”

What had snowballed was the volume of trading in Credit Suisse’s stock by small investors, which had roughly doubled from Friday to Monday, according to a gauge of retail activity from Nasdaq Data Link.

Amateur traders who gather on social media can’t trade sophisticated products like credit-default swaps — products that protect against companies’ reneging on their debts. But their speculation drove the price of these swaps past levels reached during the 2008 financial crisis.

Some asset managers said they had discussed the fate of the bank at internal meetings after the meme stock mania that was unleashed in early October. While they saw no immediate risk to Credit Suisse’s solvency, some decided to cut trading with the bank anyway until risks subsided.

In another private message on Twitter, Mr. Lewis declined to speak further about why he had predicted that Credit Suisse would collapse.

“The math and evidence is fairly obvious at this point,” he wrote. “If you disagree, the burden is really on you to support that position.”

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The Fed and the S.E.C. chair have their eyes on meme stocks and the Archegos fallout.

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The Federal Reserve’s Financial Stability Report, released Thursday, followed an unusual six months for markets. Over that period, stocks climbed steadily as the U.S. economic outlook rebounded, and stories of excess began to crop up, such as the frothy markets around so-called “meme stocks” such as GameStop and huge losses at a number of banks tied to problems at a hedge fund, Archegos Capital Management.

“While broader market spillovers appeared limited, the episode highlights the potential for material distress” at financial companies that aren’t banks “to affect the broader financial system,” the Fed said in its report. It said hedge fund opacity had also raised questions during the meme stock episode: Some funds that were betting against the stocks in question took losses as chat board vigilantes poured into them.

The answer to both episodes, the Fed seemed to suggest, starts with better data, Jeanna Smialek reports for The New York Times.

Gary Gensler, the new chairman of the Securities and Exchange Commission, said at a House Committee on Financial Services hearing that the S.E.C.’s staff has been working on a report addressing the issues raised by the GameStop episode that will be released this summer. He also said new rules may be needed for brokerage apps that turn stock trading into a game or contest, a method called gamification, Matthew Goldstein reports.

the collapse of Archegos pushed regulators to consider whether traders should be required to disclose derivatives. Archegos’s losses were mostly attributed to the firm investing heavily in total return swaps, a type of highly leveraged derivative that can give a trader exposure to a stock without actual ownership.

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SpongeBob, ‘Star Trek’ and sports drive subscriptions to Paramount+.

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SpongeBob, “Star Trek” and the Super Bowl have attracted new subscribers to ViacomCBS’s streaming platforms.

The company, led by Shari Redstone, rebranded its long-running streaming service as Paramount+ in March, while also providing it with a slew of new shows, films and sports programming. The company also added content to Pluto, its free streaming service.

The stronger commitment to digital media has created a revenue powerhouse, with streaming sales jumping 65 percent to $816 million in the first quarter, the company reported Thursday. ViacomCBS said it added 6 million new streaming subscribers to both Paramount+ and a smaller streaming service, Showtime, bringing the total to 36 million.

The company doesn’t disclose how many customers are coming to each platform, but the majority have bought Paramount+, a cheaper service at $6 a month with ads, or $10 a month without commercials. ViacomCBS plans to offer a new tier at $5 a month this June in an effort to drive more subscribers. That should help the company sell more ads, offsetting the price drop.

true profitability only after it surpassed 200 million subscribers last year.

The company said it will invest more in original series and films for Paramount+, and, in a marked switch from its previous strategy, it plans to hold back more of its own productions for the service, instead of licensing them to other streamers.

In 2019, the company sold rights to “South Park,” one of its most popular franchises, to AT&T’s HBO Max for $500 million for several years. It has also sold shows such as “Tom Clancy’s Jack Ryan” to Amazon Prime Video and “Thirteen Reasons Why” to Netflix. Now, ViacomCBS will try to fill its content pipeline from its own studios.

jumped nearly tenfold in the past year.

Most of those gains had come as a result of a heavily leveraged trading strategy from a single investment firm called Archegos Capital Management, led by the investor Bill Hwang. At one point Mr. Hwang was responsible for $20 billion of ViacomCBS stock, or a third of all shares.

It all came tumbling down last month, when lenders demanded their money back. ViacomCBS also suffered as its share price plummeted from a high of $100 to about $38 on Thursday.

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Hurt by Losses, Credit Suisse Faces Reckoning Under New Chairman

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But risk problems lingered under the surface: The departure of longtime bankers during his tenure had cost Credit Suisse valuable institutional knowledge, and the bank had built an increased zeal for working with up-and-comers, like Luckin Coffee and Greensill.

In finance, risk management — the ability to take into account a sometimes-volatile mix of bank positions, market activities, assets and liabilities, and reputational and technological concerns to foresee potential losses — is a crucial skill.

But the bank’s approach has been extremely technical, said Arturo Bris, a professor of finance at the IMD business school in Lausanne, Switzerland. An overreliance on calculation can be a problem if those in charge aren’t taking a holistic view.

“Most of these failures have much more to do with human mistakes,” he said. “I don’t think they’re good risk managers.”

Consider the Archegos collapse: The prime brokerage head of risk who oversaw Credit Suisse’s dealings with Archegos had once handled the bank’s sales relationship with the firm. Above him was a chief risk officer whose background was in finance and compliance — not risk.

Credit Suisse has held more than a half-dozen executives responsible for its recent stumbles. The last day for Brian Chin, the chief executive of the investment bank, was Friday. Lara Warner, the chief risk and compliance officer, already departed. And then there was the departure of Mr. Gottschling, the board’s risk committee leader, who did not seek re-election at the annual meeting.

Now Mr. Horta-Osório will have to figure out whether Credit Suisse can steady its investment bank with personnel changes, or if a more serious makeover is in order.

If he chooses to make big changes, he may have to move swiftly.

“Shareholders and employees cannot wait for months for a new strategy,” said Manuel Ammann, a professor at the Swiss Institute for Banking and Finance at the University of St. Gallen. “They need to deliver fast.”

Anupreeta Das contributed reporting.

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He Built a $10 Billion Investment Firm. It Fell Apart in Days.

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Until recently, Bill Hwang sat atop one of the biggest — and perhaps least known — fortunes on Wall Street. Then his luck ran out.

Mr. Hwang, a 57-year-old veteran investor, managed $10 billion through his private investment firm, Archegos Capital Management. He borrowed billions of dollars from Wall Street banks to build enormous positions in a few American and Chinese stocks. By mid-March, Mr. Hwang was the financial force behind $20 billion in shares of ViacomCBS, effectively making him the media company’s single largest institutional shareholder. But few knew about his total exposure, since the shares were mostly held through complex financial instruments, called derivatives, created by the banks.

That changed in late March, after shares of ViacomCBS fell precipitously and the lenders demanded their money. When Archegos couldn’t pay, they seized its assets and sold them off, leading to one of the biggest implosions of an investment firm since the 2008 financial crisis.

Almost overnight, Mr. Hwang’s personal wealth shriveled. It’s a tale as old as Wall Street itself, where the right combination of ambition, savvy and timing can generate fantastic profits — only to crumble in an instant when conditions change.

in a 2019 speech. “I couldn’t go to school that much, to be honest.”

Grace and Mercy Foundation, a New York-based nonprofit that sponsors Bible readings and religious book clubs, growing it to $500 million in assets from $70 million in under a decade. The foundation has donated tens of millions of dollars to Christian organizations.

“He’s giving ridiculous amounts,” said John Bai, a co-founder and managing partner of the equity research firm Fundstrat Global Advisors, who has known Mr. Hwang for roughly three decades. “But he’s doing it in a very unassuming, humble, non-boastful way.”

But in his investing approach, he embraced risk and his firm ran afoul of regulators. In 2008, Tiger Asia lost money when the investment bank Lehman Brothers filed for bankruptcy at the peak of the financial crisis. The next year, Hong Kong regulators accused the fund of using confidential information it had received to trade some Chinese stocks.

In 2012, Mr. Hwang reached a civil settlement with U.S. securities regulators in a separate insider trading investigation and was fined $44 million. That same year, Tiger Asia pleaded guilty to federal insider-trading charges in the same investigation and returned money to its investors. Mr. Hwang was barred from managing public money for at least five years. Regulators formally lifted the ban last year.

ViacomCBS announced plans to sell new shares to the public, a deal it hoped would generate $3 billion in new cash to fund its strategic plans. Morgan Stanley was running the deal. As bankers canvassed the investor community, they were counting on Mr. Hwang to be the anchor investor who would buy at least $300 million of the shares, four people involved with the offering said.

But sometime between the deal’s announcement and its completion that Wednesday morning, Mr. Hwang changed plans. The reasons aren’t entirely clear, but RLX, the Chinese e-cigarette company, and GSX, the education company, had both spiraled in Asian markets around the same time. His decision caused the ViacomCBS fund-raising effort to end with $2.65 billion in new capital, significantly short of the original target.

ViacomCBS executives hadn’t known of Mr. Hwang’s enormous influence on the company’s share price, nor that he had canceled plans to invest in the share offering, until after it was completed, two people close to ViacomCBS said. They were frustrated to hear of it, the people said. At the same time, investors who had received larger-than-expected stakes in the new share offering and had seen it fall short, were selling the stock, driving its price down even further. (Morgan Stanley declined to comment.)

By Thursday, March 25, Archegos was in critical condition. ViacomCBS’s plummeting stock price was setting off “margin calls,” or demands for additional cash or assets, from its prime brokers that the firm couldn’t fully meet. Hoping to buy time, Archegos called a meeting with its lenders, asking for patience as it unloaded assets quietly, a person close to the firm said.

Those hopes were dashed. Sensing imminent failure, Goldman began selling Archegos’s assets the next morning, followed by Morgan Stanley, to recoup their money. Other banks soon followed.

As ViacomCBS shares flooded onto the market that Friday because of the banks’ enormous sales, Mr. Hwang’s wealth plummeted. Credit Suisse, which had acted too slowly to stanch the damage, announced the possibility of significant losses; Nomura announced as much as $2 billion in losses. Goldman finished unwinding its position but did not record a loss, a person familiar with the matter said. ViacomCBS shares are down more than 50 percent since hitting their peak on March 22.

Mr. Hwang has laid low, issuing only a short statement calling this a “challenging time” for Archegos.

Kitty Bennett contributed research.

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Investment Firm’s Collapse Put Unseen Risks on Full Display

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After the implosion of a little-known investment firm saddled banks around the world with billions of dollars in losses last week, one big question is being asked all over Wall Street: How did they let this happen?

The answer may stem from the way the firm, Archegos Capital Management, with ample assistance from at least half a dozen banks, made bets on stocks without actually owning them.

Archegos used esoteric financial instruments known as swaps, which get their name from the way they exchange one stream of income for another. In this case, Wall Street banks bought certain stocks Archegos wanted to bet on, and Archegos paid the banks a fee. Then, the banks paid Archegos the stocks’ returns.

These swaps magnified the fund’s buying power, but they also created a two-pronged problem. Archegos was able to build up much more influence over the share prices of a few companies, including ViacomCBS and Discovery, than it could afford on its own. And because there are few regulations about these types of trades, it was under no disclosure obligations.

was embroiled in an insider-trading case under his leadership. But it used leverage — essentially, trading with borrowed money to amplify its buying power — perhaps as much as eight times its own capital, some Wall Street analysts calculated.

In this case, leverage showed up in the form of swap contracts. In return for a fee, the bank agrees to pay the investor what the investor would have gotten from actually owning a share over a certain period. If a stock rises in price, the bank pays the investor. If it falls, the investor pays the bank.

Archegos focused its bets on the share prices of a relatively small number of companies. They included ViacomCBS, the corporate parent of the country’s most-watched network; the media company Discovery; and a handful of Chinese technology firms. The banks it used to buy swaps held millions of shares in ViacomCBS alone.

Normally, big institutional investors are required by the S.E.C. to publicly disclose their holdings of stock at the end of each quarter. That means investors, lenders and regulators will know when a single entity holds a big ownership stake in a company.

But S.E.C. disclosure rules don’t usually cover swaps, so Archegos didn’t have to report its large holdings. And none of the banks — at least seven that are known to have had relationships with Archegos — saw the full picture of the risk the fund was taking, analysts say.

the most recent data available, according to the Bank for International Settlements, an international consortium of central banks.

Mitsubishi UFJ Securities Holdings Company, a unit of the Japanese financial conglomerate, reported a potential loss of around $270 million.

Analysts say the damage was relatively contained, and while the losses have been large for some players, they’re not big enough to pose a threat to the broader financial system.

But the episode will most likely reinvigorate a push to expand the regulation of derivatives, which have been associated with many prominent financial blowups. During the 2008 crisis, the insurance giant AIG nearly collapsed under the weight of unregulated swaps contracts it wrote.

The cascade of problems that began with Archegos was only the latest example of derivatives’ ability to increase unseen risk.

“During the financial crisis of 2008, one of the biggest problems was that many of the banks didn’t know who owed what to whom,” said Tyler Gellasch, a former S.E.C. lawyer who heads the Healthy Markets Association, a group that pushes for market reforms. “And it seems that happened again here.”

Matthew Goldstein contributed reporting.

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Banks Face Billions in Losses as a Bet on ViacomCBS and Other Stocks Goes Awry

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Mr. Hwang had worked under the billionaire hedge fund titan Julian Robertson at Tiger Management, making him one of the firm’s famous alumni, or “cubs,” when he started his own fund, Tiger Asia. But in 2012, he faced an insider-trading investigation; securities regulators said Tiger Asia had used confidential information to bet against the shares of Chinese stocks, and had manipulated other shares.

Mr. Hwang entered a guilty plea to wire fraud on behalf of Tiger Asia and paid millions of dollars in fines while also accepting a five-year ban on managing public money as a result of the settlement with the S.E.C. He reorganized the firm as a family office, meaning it was no longer managing outside money, and renamed it Archegos Capital Management; archegos is a Greek word meaning leader or founding father, and is used in the Bible to refer to Jesus.

“It’s not all about money, but it’s about long term,” Mr. Hwang said in a 2018 video in which he discussed his faith and work. “God certainly has a long-term view.”

According to four people familiar with the matter, Mr. Hwang had recently built large holdings in a small number of stocks, including ViacomCBS and Discovery, which also operates the cable channels TLC and the Food Network, and the Chinese companies RLX Technology and GSX Techedu. Those bets unraveled spectacularly in just a few days last week.

Last Monday, shares of RLX Technology, an e-cigarette company, tumbled sharply after Chinese regulators presented potential new regulations on the industry. RLX securities listed in the United States, called American depositary receipts, tumbled 48 percent. The next day, GSX Techedu, a tutoring company that has been a target of short sellers in recent years who claimed the firm’s sales numbers were overstated, fell 12.4 percent.

On Wednesday, ViacomCBS sold a batch of shares on the open market to raise money to finance its new streaming businesses, exacerbating Mr. Hwang’s situation. His firm began fielding queries from worried banks. Lenders at Goldman Sachs urged Archegos to pare its exposure, said two people familiar with those conversations. But Archegos pushed back, saying the battered stocks would recover, one of the people said.

By Friday morning, when Archegos was unable to post additional “margin,” Morgan Stanley and Credit Suisse, two of Archegos’s main lenders, had declared the fund to be in default, four people briefed on the matter said. Their action paved the way for Goldman Sachs and others to do the same. Soon, huge blocks of stocks were on offer.

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Credit Suisse and Nomura Feel the Sting from Archegos’ Fall

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The case is a test of shareholders’ ability to sue over claims of investment fraud. The pension funds have sought to sue as a class over Goldman’s statements, saying that they believed the claims of honesty. Goldman has argued in its latest brief that the investors are resorting to “guerrilla warfare” and aren’t providing “serious legal arguments.” The bank says that an investor victory would lead to a barrage of future lawsuits over “general and aspirational statements” of the kind made by “virtually every public company in America.”

How a former S.E.C. commissioner thinks the court will respond to Goldman’s arguments: “I expect the court to be troubled by the claim that companies cannot be held accountable for saying that clients come first and then acting otherwise,” Robert Jackson Jr., who served on the commission from 2018 to 2020 and is now an N.Y.U. law professor, told DealBook. (The justices probably won’t agree with the claim that making a company “mean what it says” will lead to a tsunami of meritless lawsuits, he added.) Regardless, Goldman is right that the stakes are high, he said, since the case will probably decide whether shareholders can “hold corporate insiders accountable when they tell investors one thing and do another.”

What made last night different from all others? A diverse group of comedians, celebrities and venture capitalists doesn’t normally gather for a virtual Passover Seder on a chat app. But that is what happened last night on Clubhouse, which hosted what was possibly the world’s first hunt for a nonfungible token version of afikomen, the broken matzo ritualistically hidden for children to find and claim a prize.

Like an NFT, an afikomen is a unique object. “It feels like a reasonable updating of tradition,” said fnnch, the San Francisco street artist who created images of broken matzo for the event. NFTs are digital assets that represent sole ownership of things that are otherwise easily replicated — in this case fnnch’s pictures. He predicted that NFTs would eventually include a technological lock preventing copies from displaying, which would make owning them much more like possessing a physical artwork.

One afikomen NFT is being auctioned off to support Value Culture, a nonprofit that sponsors art, education and spiritual projects to foster community engagement. The other was nestled within the profile of someone in the Clubhouse room and given away for free. (Hints about to how to find them lay in the Passover tale that is traditionally told at a Seder.)

The annual college basketball championship — and betting bonanza — known as March Madness has been full of upsets, on both the men’s and women’s sides, blowing up many brackets.

If you no longer have hope of winning the office pool, here’s another contest to think about: March’s maddest markets. We’ve come up with a mini-tournament of seeded matchups to determine which mania is the most manic.

How would you bet? Let us know: dealbook@nytimes.com.

Stonks division

No. 1 SPACs vs. No. 4 penny stocks

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