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Posted April 28, 2021

Sean Ring

By Sean Ring

Credit Suisse Hwangs Itself; UBS Loses High Ground, Suffers $774m Loss

Oops, I did it again, sang Britney Spears.

Credit Suisse should adopt it as their theme song. My old bank has had a death wish for a while, but these last few months take the cake. Bill Hwangs Archegos fund blowup has cost them $5.5 billion (yes, with a b). But before we get sucked in, lets note that UBS (Used to Be Smart) lost $774m as well. Sorry, just wanted to play fair.

The latest round of missteps has left Credit Suisse blushing. As my friend, a Goldman Sachs partner, WhatsApped me, your previous organization seems to be in perpetual trouble with the management, espionage, risk management, dodgy people makes for an entertaining read of the weekend FT!

Lets not rehash everything the bank has done to destroy itself over the past two decades. We can start in 2015, with the appointment of Tidjane Thiam. Thiam was supposed to be a savior after Brady Dougans volatile reign.



The Entrepreneurs Bank

Thiam, an old McKinsey man (Shields Up! Red Alert!), decided to take the bank away from its recent trading makeover and turn it into a vast wealth management house. But that wasnt the only thing. His idea - funnily enough, following UBSs steps - was to meld the investment bank and private bank into a cross-selling entrepreneurs bank.

On the face of it, its a great idea. Say the investment bank is covering a corporate thats about to IPO. The founders would experience a liquidity event. Thats banker-speak for those dudes are about to get very rich. Thiam mandated that the investment bankers covering that corporate must introduce its founders to one of Credit Suisses private bankers.

Likewise, if a private banker whos managing a high-net-worth individuals money and realizes the HNWIs company needs advisory or financing, hes supposed to introduce that HNWI to an investment banker.

This works incredibly well in Asia, where the money is much newer than, say, in Europe, where most of the wealth is inherited.

Some of you who worked for banks may recall that private bankers and investment bankers rarely speak to each other especially about business so this was a new way of doing things.

For those of you who havent: investment bankers think private bankers cant even model a company. Private bankers think models are the people who answer the phones in their offices.

Long story short: the private/investment bank combo has led to a massive over-concentration of risk.

But before we even get into that, let me get James Bond on your ass.

I Spy with My Little Eye a new UBS Employee?

Iqbal Khans story is fabulous. Ambitious, hardworking, and annoyingly handsome, Khan rose through Ernst & Youngs Swiss arms ranks to become its youngest ever partner. Later, he left there for Credit Suisse to become the Head of International Wealth Management at only 40 years old.

Tidjane Thiam was impressed. And then, rather incredibly, Khan moved right next door to him.

To me, moving in next door like that, there are two signals you might be wanting to send, says one Credit Suisse executive. Either: We get along so well Id like to spend more time near you, or else: Im coming for you.

Well, Khan did come for Thiams hedges! Ludicrously, the two fell out over the home improvements Khan was making to his house. It wrecked Thiams view, and the noise was unbearable.

No, Im not making this up.

So, Khan wound up resigning and went to UBS, Credit Suisses larger rival and next-door neighbor. Thiam was so furious and worried he hired a private investigator to follow Khan.


Unfortunately for Thiam, this PI was more Johnny English than Philip Marlowe. Khan realized he was being followed and went to the police. Thiam was embarrassed and, a few months later, was out the door himself.

Greensill Capital

Next up, Lex Greensill and his supply chain finance company.

According to its court filings, Greensill had three main businesses: supply chain financing, accounts receivables financing (also known as factoring), and a practice Greensill called future accounts receivables finance.

Future accounts receivables? What the hell are future accounts receivable?

Credit Suisse lent to them on the back of that. Now, its in the hole for $90 million of the $140 million it loaned to them. Not only that, but clients are screaming for Credit Suisse to make good on the supply chain funds CS sold them that were described as safe.

Get this: The banks risk management team rejected those loans, but upper management stepped in to approve the loans because Lex Greensill was also a private banking client. Thats concentration risk in a nutshell.

Whats a nice guy from Tenafly doing in a place like this?

Bill Hwang, of Tenafly, NJ - of all places! - is a story of ambition overtaking reason. He was a protg of the great Julian Robertson. Upon Robertson shuttering Tiger Management, he seeded Hwang $25 million to run Tiger Asia. Hwang grew the fund to over $5 billion at its peak.

But in 2012, Tiger Asia Management admitted to insider trading and paid more than $60 million in fines. In 2013, Hwang turned Tiger into a family office called Archegos. That way, his trading would be less regulated than if he remained a hedge fund. In 2014 in Hong Kong, Hwang was banned from trading for four years.

Its as if Chemical Ali was Hwangs PR officer: Theres nothing to see here!

Despite that, Goldman Sachs, Morgan Stanley, Nomura, and, of course, Credit Suisse continued to fund Hwangs excessively levered family office.

Archegos was reportedly worth between $10-15 billion with 5x leverage. That is, Archegos used that $10-15 billion to trade $50-75 billion worth of stock. It was also a highly concentrated fund.

How did they do that?

Total return swaps.

These swaps allow the fund to earn the equity return on the securities they want but dont have to file a 13F disclosing those positions because they dont own the stock. (The banks do and pass on the return.) Of course, this goes south once the equities fall, as they did for Archegos.

Why on earth would Credit Suisse take this risk?

Because Hwang was almost certainly a private banking client, as well.

More concentration risk.

As one of my old trader buddies from Barclays WhatsApped me, Tiger Asia was one of my clients. Im amazed the PB did business with him again.

Lara Warner, the Head of Risk and Compliance, and Brian Chin, the Head of the Investment Bank, have been relieved of their duties.

But to my mind, not enough people are getting fired. With zero interest rates, it takes a stupid amount of risk for something to blow up. Theres simply no penalty to pay when you can rollover your financing at zero cost in perpetuity.

I dont hate bank stocks because of the earnings volatility or the razor-thin net interest margins. Its that the tops of the houses are rotten.

Im convinced some scribe screwed up a few thousand years ago. Money isnt the root of all evil. But money printing is.

As seen on LinkedIn:

Q: On a scale of 1-10, how levered are you?





And finally, from an Australian star trader:

Hwanged (verb): To suffer a permanent loss of capital as a result of extending excessive and imprudent leverage to someone who has been found guilty of securities fraud.

Im stuck in the office bro. Risk are making me review all my credit lines. The bank doesnt want to get Hwanged.

Hilariously, a comment from a Hong Kong trader follows:

BTW, In Cantonese, when you say something is hwang (meaning yellowed), it means destroyed, lost so your verb of Hwanged actually means something in Cantonese Hong Kong.

Tower of Babel be damned. We all speak the same language on the way down!

What Else is Going On?


The first time I read it, I immediately thought of these two nerds:


What the f*ck is a frush?

Why would a multibillion-dollar asset manager change its name?

Mea culpa.

I thought Standard Life Aberdeen was trying to get down with the kids. Probably a bit woke. Spell like a drunk 17-year-old trying to text.

It was none of those things.

The Wall Street Journal reported that the company had two problems with its name. First, it couldnt trademark anything, as its home city is named Aberdeen. And second, one which is close to my entrepreneurial heart, is that the company only ranked 35th for the keyword Aberdeen.

I checked. Theyre nowhere to be seen on the first page of Google.

I was shocked. People actually look up Aberdeen? As in, the city? Colder than a mother-in-laws kiss, wetter than an otters pocket Aberdeen?

For what? Its like checking out Scranton for a dirty weekend.

As a start-up CEO, sometimes I feel like C-3PO on a Tatooine sand dune waving and screaming, Over here!

Apparently, it happens to the big guys, too.

Abrdn, you have my sympathies.

The Oscars

Who cares? Apparently no one.

Talk about unwoke! Old Tony Hopkins was sleeping over 5,000 miles away in Wales when his name was called for Best Actor.

I dont blame him. Tonys 3 days older than water. He thought he had no chance of winning, especially with the woke brigade screaming for Chadwick Boseman to be posthumously awarded the trophy.

(I havent seen either movie, so Ive got no dog in this fight.)

Morning Brew velvety hammered Hollywood this morning:


Dont really need a graph for this one, do ya?

Have a kick-ass day today!

All the best,

Sean Ring

Sean Ring

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