This website uses cookies to collect usage information in order to offer a better browsing experience. By browsing this site or by clicking on the "ACCEPT COOKIES" button you accept our Cookie Policy.

Archegos and the Tale of Two Banks

By:

President Y H & C and a Portfolio Manager for Interactive Advisors

Over the last few weeks, as the financial world learned about the blow up at Archegos, the bread crumbs have been followed to the banks which financed the hedge fund.

Let us consider two entities: Credit Suisse (CS) and JP Morgan Chase (JPM).

Credit Suisse is one of the largest banks in Europe and does a large amount of business in Asia. Its primary two lines of business are wealth management and investment banking.

Reputation Hit

Over the last five years, in my view it has showed improved performance but the last year has seen multiple errors in risk management wipe out a great deal of capital, along with its highly valued Swiss banking reputation.

The head of its investment bank and its chief risk manager were shown the door only six months after they replaced the predecessors.

The Archegos scandal will cost the bank billions in writedowns, only a few short days after revealing a supply chain financing problem as well.

Dimon World

JP Morgan turned down business from Archegos, while Credit Suisse did not.

It is run by the legendary banker and leader, Jamie Dimon. Dimon released his annual shareholder letter last week.

Chase is number one or two in every business line, and will generate nearly $50 billion of operating profit on more than $120 billion of revenue. It is the most profitable bank in the United States and has the highest market value of any bank in the world.

Tech Threat

Yet, its leader emphasized in the letter that banks will be threatened by fintech companies like Amazon (AMZN), Google (GOOGL), and Facebook (FB), among others.

He discusses a wide variety of business and competitive issues, along with societal challenges and political dysfunction. More importantly, he comes up with ways to attempt to solve the problems.

I would highly recommend reading the shareholder letter.

Originally Posted on April 13, 2021 – Archegos and the Tale of Two Banks

Disclosure: Interactive Advisors

This material is not intended as investment advice. Interactive Advisors or portfolio managers on its marketplace may hold long or short positions in the companies mentioned through stocks, options or other securities.

Pursuant to the Investment Management Agreement between Interactive Advisors and its clients, all brokerage transactions occur through Interactive Brokers LLC, an affiliate of Interactive Advisors. Interactive Advisors does not offer services through any other broker-dealer. The use of an affiliate for brokerage services represents a conflict of interest. Interactive Advisors clients acknowledge this conflict of interest and authorize Interactive Advisors to execute transactions through Interactive Brokers LLC when they open an Interactive Advisors account. Clients should consider the commissions and other expenses, execution, clearance, and settlement capabilities of Interactive Brokers LLC as a factor in their decision to invest in an Interactive Advisors Portfolio. Interactive Advisors believes it can meet its best execution obligation by trading its clients’ trades through Interactive Brokers LLC. While there can be no assurance that it will in fact achieve best execution, Interactive Advisors does periodically monitor the execution quality of transactions to ensure that clients receive the best overall trade execution pursuant to regulatory requirements.

Disclosure: Interactive Brokers

Information posted on IBKR Traders’ Insight that is provided by third-parties and not by Interactive Brokers does NOT constitute a recommendation by Interactive Brokers that you should contract for the services of that third party. Third-party participants who contribute to IBKR Traders’ Insight are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

This material is from Interactive Advisors, an affiliate of Interactive Brokers LLC, and is being posted with permission from Interactive Advisors. The views expressed in this material are solely those of the author and/or Interactive Advisors and IBKR is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

In accordance with EU regulation: The statements in this document shall not be considered as an objective or independent explanation of the matters. Please note that this document (a) has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and (b) is not subject to any prohibition on dealing ahead of the dissemination or publication of investment research.

Disclosure: Hedge Funds

Hedge Funds are highly speculative, and investors may lose their entire investment.

trading top