Credit Suisse tightens hedge fund limits amid Archegos fallout

Credit Suisse is asking some clients to move to the new terms immediately.
Credit Suisse is asking some clients to move to the new terms immediately.PHOTO: REUTERS

ZURICH (BLOOMBERG) - Credit Suisse Group is tightening the financing terms it gives hedge funds and family offices, in a potential harbinger of new industry practices after the Archegos Capital Management blow-up cost the Swiss bank US$4.7 billion (S$6.3 billion).

Credit Suisse has been calling clients to change margin requirements in swap agreements so they match the more restrictive terms of its prime-brokerage agreements, people with direct knowledge of the matter said. Specifically, Credit Suisse is shifting from static margining to dynamic margining, which may force clients to post more collateral and could reduce the profitability of some trades.

A spokeswoman for Credit Suisse had no comment.

Swaps are the derivatives trader Bill Hwang used to take highly leveraged positions in stocks at Archegos, his New York-based family office. When his positions suddenly lost value the week of March 22, Archegos blew through its margin and equity, and Mr Hwang lost US$20 billion in just a few days.

Static margining sets a fixed amount of collateral that a client has to post to maintain a certain size of position or account. With dynamic margining, a dealer can require more collateral if the underlying risk of the position or account increases due to factors such as volatility or concentration.

Typically, clients lock in margin terms on swap agreements for a period of, say, 60 or 180 days. Zurich-based Credit Suisse is asking some clients to move to the new terms immediately, one of the people said.

The move may signal a broader tightening of financing terms for hedge funds and family offices - firms that manage money for the very wealthy. Three of the banks that did business with Archegos have disclosed US$7 billion of losses collectively, and analysts at JPMorgan Chase & Co have estimated they may reach US$10 billion.

In addition to reporting the largest of those losses, at US$4.7 billion, Credit Suisse forced out executives including the head of its investment bank and head of risk.