The Chairman of the US Senate Banking Committee has written to four major banks, including Credit Suisse and Nomura, seeking answers on the implosion of Archegos Capital, a sign that Washington lawmakers are stepping up scrutiny of family offices and their lenders .
Sherrod Brown, the Democratic Senator from Ohio who chairs the powerful committee, sent letters Thursday to Credit Suisse, Nomura, Goldman Sachs and Morgan Stanley asking for detailed explanations of their relationship with Bill Hwang’s Archegos and family offices. more generally. Brown gave the lenders two weeks to respond to his request.
“I am troubled, but not surprised, by reports that Archegos has entered into risky derivative transactions facilitated by the major investment banks, which resulted in the panicked sale of stocks worth tens of billions of dollars and these banks collectively losing nearly $ 10 billion, ”Brown said. in his letter to Crystal Lalime, General Counsel at Credit Suisse.
“The details and ultimate consequence of Archegos’ 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, the story of Hwang and the transactions that were made. mentioned in news reports, ”Brown added.
The intervention comes after several major banks warned investors and regulators they risked losing billions of dollars from their dealings with Archegos – a family office run by Hwang, a former hedge fund manager – after the company failed to respond to margin calls.
Earlier this week, Credit Suisse revealed a loss of $ 4.7 billion from the explosion in Archegos transactions, higher than previous estimates. Credit Suisse was one of several lenders to act as the prime broker for Hwang, allowing the family office to place high leverage bets on US and Chinese equities.
Hwang established the family office in 2013, after shutting down Tiger Asia Management, the hedge fund he founded in 2001, following allegations of insider trading and a $ 44 million settlement with Securities and United States Exchange Commission. Family offices are less regulated than other investment vehicles, with fewer disclosure requirements.
Brown is the latest senior official to seek answers to the Archegos collapse.
Regulators, including the SEC and the UK’s Financial Conduct Authority, have requested information from the banks concerned. Finra, Wall Street’s self-regulatory body, has also contacted the lenders.
Other Capitol Hill lawmakers have also expressed concerns about the situation. Elizabeth Warren, a Democratic senator from Massachusetts and a staunch advocate for tighter financial regulation, told CNBC that the Archegos explosion had “ all the makings of a dangerous situation – largely unregulated hedge funds, opaque derivatives , trading in private, high dark pools. leverage, and a trader who escaped SEC enforcement ”.
“Regulators must rely on more than luck to fend off risks to the financial system: we need transparency and strong oversight to make sure the next hedge fund boom doesn’t cause the economy to crash.” She added.