Context and key messages
In March 2021, Credit Suisse suffered a loss of roughly USD 5.5 billion, triggered by the collapse of Archegos Capital Management. Archegos was a US-based family office—i.e., a private wealth management vehicle for a single high-net-worth individual. Unlike traditional hedge funds, family offices face substantially lighter regulatory requirements, especially regarding transparency and disclosure to markets and supervisors.
Archegos used this structure to build very large, highly leveraged, and highly concentrated equity positions. It did not primarily buy shares outright, but relied on complex instruments known as total return swaps (TRS). This structure made it possible to control economic exposure to shares without being visible as a shareholder.
Credit Suisse served Archegos via its prime services division—the business that provides hedge funds and family offices with financing, derivatives, and clearing services. The Archegos case shows that the loss did not emerge overnight; it was the result of a long, gradual erosion of risk discipline. Warning signals were identified but repeatedly downplayed or not implemented consistently for commercial reasons.
Background: Archegos and Credit Suisse
The relationship between Credit Suisse and Archegos goes back to the early 2000s. As early as 2003, Archegos—then operating under the name Tiger Asia—became a client of the bank. From 2005 onward, Tiger Asia used equity swaps to build equity exposures through Credit Suisse.
After serious allegations of insider trading and market manipulation, Tiger Asia reached a settlement with US authorities in 2012. It was subsequently renamed Archegos Capital Management and continued as a family office. Despite this history, the business relationship remained in place. Internal reputation reviews did not lead to meaningful restrictions, while the bank’s exposure to Archegos continued to grow.
In hindsight, this resembles a gradual normalization effect: a client that generates strong revenues over many years becomes increasingly taken for granted—even if its history and risk profile warrant caution.
How Archegos built exposure: TRS, bullet swaps, and margining
To understand the case, it is essential to understand the instruments involved. Total return swaps are contracts under which a bank passes the price performance of a share to a client. The client receives gains and bears losses without owning the share. The bank holds the share on its own balance sheet.
For Archegos, this model offered several advantages. It enabled very large positions with comparatively little equity. It also kept the true scale of its exposures largely invisible to the market. Particularly risky were so-called bullet swaps, where gains and losses are settled only at the end of the term. This allowed positions to be held for long periods and expanded further.
Another crucial point was collateralization. Credit Suisse required Archegos mainly to post a static initial margin. This meant the collateral remained constant in absolute dollar terms even as risk increased significantly due to rising share prices. Dynamic margining—where additional collateral would automatically be required as risk grew—was discussed but not implemented for a long time. In simple terms: risks grew faster than the safety nets.
Early signals: warning signs, CPOC, and missed opportunities
There were clear indications years before the collapse that risks were accumulating. From 2017 onward, internal risk thresholds were repeatedly breached. Instead of using this as a trigger to fundamentally reassess the relationship, the bank repeatedly granted exceptions and transition periods.
A particularly consequential step came in 2019, when required collateral was materially reduced at Archegos’ request. At the same time, position size and concentration continued to increase. Throughout 2020, internal exposure limits were violated almost regularly. Risk management staff repeatedly raised concerns but struggled to enforce them against the front office.
After an earlier loss event, the bank set up a dedicated oversight body—the Counterparty Oversight Committee (CPOC). Archegos was flagged there as a particularly risky counterparty. Yet discussions did not translate into clear consequences. Key decision-makers did not always attend meetings, and accountability was not clearly assumed. Risks were visible—but no one intervened decisively.
The default: margin calls, escalation, and loss
When the prices of Archegos’ core stocks deteriorated sharply in March 2021, the situation escalated quickly. Highly leveraged and concentrated positions triggered massive margin calls. Archegos was no longer able to meet the required collateral.
Credit Suisse ultimately declared an event of default—i.e., a formal contractual breach by the client. Large equity positions then had to be sold under severe time pressure. Because multiple banks sold simultaneously and market liquidity was limited, prices fell sharply. While some competitors began block sales early, Credit Suisse hesitated—with significant consequences.
The outcome was a loss of roughly USD 5.5 billion—one of the largest single losses in the bank’s history.
The Archegos portfolio: leverage and concentration
Shortly before the collapse, Archegos controlled an exceptionally large equity portfolio. The equity invested was dwarfed by the resulting market exposure. The portfolio was almost entirely positioned for rising prices.
Especially problematic was the extreme concentration in a small number of stocks. In some companies, Archegos held economic stakes representing a significant share of free float. For non-specialists, that means: once these positions had to be sold, even small sell volumes were enough to put massive pressure on prices.
Aftermath and responses: Credit Suisse, markets, ratings
After the loss became public, Credit Suisse responded with far-reaching measures. The bank suspended share buybacks, downsized its investment bank, and largely withdrew from the prime services business. Senior managers resigned, and an external investigation found severe shortcomings in risk management.
Market reaction was also sharp. The share price fell, and the cost of hedging against a credit event rose materially. Rating agencies revised Credit Suisse’s outlook to negative, further increasing funding pressure.
Regulatory and legal consequences
Supervisors in multiple countries intervened. In Switzerland, FINMA identified serious deficiencies in governance and risk culture. In the United Kingdom and the United States, significant fines were imposed and extensive improvements in risk management were mandated.
In parallel, US authorities pursued Archegos itself. Founder Bill Hwang was convicted of market manipulation and fraud and sentenced to a lengthy prison term as well as substantial repayments.
Conclusion
The Archegos case shows vividly that even large, established banks can fail when risk controls are systematically weakened. The disaster was not caused by a single mistake, but by a chain of concessions, lack of escalation, and weak leadership.
Risks were recognized but not addressed consistently—until a relatively small market shock was enough to trigger a multibillion-dollar loss.