Why Didn’t Wall Street See Archegos and China Huarong Coming?
We all want the financial system to operate smoothly but even experts can overlook the footnotes and step into a quagmire of bad investments.
The alarms are coming a little late.
Photographer: Chen xiaogen/ImaginechinaWall Street can be a well-oiled machine, selling, recommending and facilitating the trading of securities with armies of prime brokers and capital markets bankers. But every so often, something ugly rears its head. And we ask: How did we even get here? Was someone asleep at the wheel?
It’s baffling how Bill Hwang of Archegos Capital Management LP built a staggering $100 billion portfolio with just $20 billion net worth. Why did elite banks give someone with a history of margin calls and fines and bans by securities watchdogs, so much leverage in the first place? Now, Credit Suisse Group AG, one of the lenders, has to soak up $4.7 billion in losses. If it wasn’t for ViacomCBS Inc.’s sudden sale of new shares that resulted in an enormous margin call, the Hwang time-bomb could still have been ticking.