(Bloomberg) -- Wall Street banks have long relied on a familiar system to limit the dangers of trading with big clients: assign sales staff to win deals, and risk controllers to keep them in check -- even if it sacrifices some profit.At Credit Suisse Group AG, executives had given the point salesman to Archegos Capital Management on its swaps desk the new responsibility of instead overseeing risk-taking in the broader prime-brokerage unit, according to people with knowledge of the matter. This year, Archegos’s swap bets spectacularly collapsed, saddling the bank with a $4.7 billion writedown, and setting it up as the biggest loser to emerge from the debacle at Bill Hwang’s family office.
Parshu Shah -- the salesman who became head of prime-services risk -- hasn’t been accused of any impropriety in previous trades with Archegos. But the bank has faced questions in the wake of the debacle over whether managers prioritized boosting revenue over managing against downside. Shah is among a roster of Credit Suisse executives who’ve been forced to step down following the blowup, according to an internal memo early this month.
The usually behind-the-scenes functions of risk controls have been thrust into the limelight after Credit Suisse was left holding the bag on two financial catastrophes in just a few months -- Hwang’s firm and the collapse of Greensill Capital. The Swiss lender’s losses have left investors puzzling over whether it has sufficient checks in place.
In recent years, Credit Suisse Chief Executive Officer Thomas Gottstein and his predecessor Tidjane Thiam gave the task of resetting risk management and the bank’s risk appetite to Lara Warner, head of risk, who is stepping down as well. She challenged risk managers to stop thinking only about defending the bank’s capital and also look at strategic business priorities, Bloomberg reported earlier.
While it’s not typical for revenue-generating finance employees to switch to risk-oversight roles, some banks make such shifts.Credit Suisse, the worst-performing major bank stock this year, is set to disclose first-quarter earnings results on Thursday that are likely to involve a more-detailed discussion around the Archegos mess. Anna Christensen, a spokeswoman for Credit Suisse declined to comment for the firm and Shah, or say how long he’d been in the risk-oversight position.
Shah, who has been with the bank for more than 20 years, was one of the people at the firm who helped nurture the relationship with Archegos as the fund began growing in size.When Shah left the swaps desk, his sales role ended and he took over the new oversight position within the prime-brokerage group. That job included overseeing the risk of several clients, including Archegos. An existing member of Shah’s team was assigned to Hwang’s firm for monitoring its activity on a daily basis, according to a Credit Suisse executive who asked not to be identified discussing internal matters.
The prime-brokerage risk group was one among several lines of defense set up to shield a firm of Credit Suisse’s size from confronting hefty losses in dealings with any one client. But the enormity of the bank’s exposure coupled with the rapid implosion of Hwang’s firm ripped through the safety net Credit Suisse had set up, leaving management befuddled, the lender’s workforce frustrated and investors furious.
In 2016, under then-CEO Thiam, Credit Suisse underwent a significant restructuring of its risk functions that led to many people leaving. The risk-control center was shifted to Zurich, Credit Suisse’s headquarters, from New York, where the majority of the bank’s investment-banking and trading activities sit.
Since the restructuring, efforts to cut costs have damped the bank’s ability to add talent and replenish the defense lines, a person familiar with the matter said.
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