Archegos Fiasco Spurs Regulators to Demand Banks’ Answers Soon

Britain’s top banking regulator is pressing ahead with an international push for answers on how banks’ exposure to Archegos Capital Management got so massive, leading to more than $10 billion in losses.

The Prudential Regulation Authority has started a probe, asking firms including Credit Suisse Group AG, UBS Group AG and Nomura Holdings Inc. to hand over information related to their lending to Archegos by next month, according to people familiar with the matter.

Authorities around the world have said they would scrutinize Archegos’s meltdown and are now making progress on those pledges. The Prudential Regulation Authority is taking the lead on positions that were held by the U.K. entities of foreign banks and coordinating with U.S., Swiss and Japanese watchdogs, said the people, who asked not to be named discussing information that is not public. Most of the leverage Credit Suisse extended to Archegos was booked in London, they added.

Before its collapse in March, Bill Hwang’s once-obscure family office built giant stakes in companies without the market knowing because the assets were held on the books of its brokers. The PRA aims to build a fuller picture of its bets by cross-checking data from the banks, the people said. The watchdog aims to conclude its probe by the end of the summer, the people said.

U.K. regulators will also scrutinize the standstill agreement that lenders initially proposed, the people said. Bloomberg has reported that banks led by Credit Suisse tried to make a deal with Hwang to untie positions without causing panic in the wider market. The trades became public knowledge anyway, triggering a selloff as brokers liquidated assets worth nearly $30 billion.

Spokespeople for the PRA and banks including UBS, Credit Suisse and Nomura declined to comment.

Banks and their supervisors are still grappling with the consequences of one of the biggest margin calls in history. Nomura has tightened financing for some hedge fund clients and is reviewing its prime brokerage unit. An internal probe is still ongoing, the people said. Credit Suisse is reducing leverage in its prime brokerage by a third, which will lead to exiting relationships with some hedge fund clients. Losses booked so far include about $2.9 billion at Nomura and $5.5 billion at Credit Suisse.

In a speech this week, Jon Hall of the BOE said the central bank was considering closer scrutiny of the work banks carry out for hedge funds, without giving further details. The Swiss parliament is preparing to hold hearings on the blowup, the SonntagsZeitung has reported, while the U.S. Senate Banking Committee is also seeking answers. The Securities and Exchange Commission has previously opened a preliminary investigation into Hwang.

Federal Reserve Chairman Jerome Powell said last month the central bank was examining the Archegos blowup because it revealed risk-management failures at a number of banks his agency supervises.

— With assistance by Donal Griffin, and Steven Arons