Goldman Sachs CEO David Solomon said on Tuesday that his bank’s risk management systems performed well after the forced shutdown of a highly leveraged fund sank several stocks in the U.S. and China and hurt other banks billions of dollars.
Discovery and ViacomCBS shares fell sharply in March, after investment banks started buying large blocks of shares at highly discounted prices, after a client failed to meet margin requirements. This client was widely publicized as the family office Archegos Capital Holdings, a highly leveraged fund managed by Bill Hwang.
The forced sale caused an estimated $ 4.7 billion loss at Credit Suisse, where two executives announced their layoffs on Tuesday. Goldman, however, reported no material losses from the negotiations.
“From my point of view, our risk controls worked well. We identified the risk early on. We took immediate corrective measures to reduce our risk according to the contract we had with the client,” said Solomon on the “Squawk on the Street” program. from CNBC. “And I can’t really talk about what other banks have done and how they have handled the situation, but I am very pleased with how our team handled it.”
Hwang made his bets concentrated through equity swaps, in which the investment banks he worked with officially owned the shares and used high leverage in their dealings. When the shares fell and he was unable to meet his capital needs, the banks took a large share of the shares.
“I think this is a classic case of an investor with concentrated positions that has leverage against them. And when the price moves against them, it is important to reduce the risk … This is not the first time this has happened and it certainly is not going to be the last, “said Salomão.
The Archegos explosion renewed the debate about the possible need for more scrutiny for family offices and an exchange of positions. Solomon said the discussion of transparency around more complex equity positions “deserves debate”, but declined to say whether it was appropriate to work with Bill Hwang, given his previous insider issues.
“I don’t think going back and questioning decisions like that right now is the answer to that,” he said.