Goldman Sachs CEO David Solomon stated Tuesday his financial institution’s risk administration methods carried out well after the pressured unwinding from a extremely levered fund tanked a number of shares within the U.S. and China and took a multibillion greenback chunk out of different banks.
Shares of Discovery and ViacomCBS fell dramatically in March after funding banks started buying massive blocks of the shares at extremely discounted costs when a shopper failed to satisfy margin necessities. That shopper was broadly reported to be the household workplace Archegos Capital Holdings, a extremely levered fund run by Bill Hwang.
The pressured promoting prompted an estimated $4.7 billion loss at Credit Suisse, the place two executives announced their resignations on Tuesday. Goldman, nonetheless, has not reported materials losses from the trades.
“From my perspective, our risk controls worked well. We identified risk early on. We took prompt, corrective action to lower our risk according to the contract we had with the client,” Solomon stated on CNBC’s “Squawk Box.” “And I can’t really speak to what other banks have done and how they’ve handled the situation, but I’m very pleased with how our team handled it.”
Hwang made his concentrated bets by way of fairness swaps, the place the funding banks he was working with formally owned the shares, and used excessive leverage in his buying and selling. When the shares went down and he could not meet his capital necessities, the banks have been left holding massive chunks of the shares.
“I think this is a classic case of an investor with concentrated positions that have leverage against them. And when price moves against them, it’s important to take down risk,” Solomon stated. “This is not the first time this has happened and it’s certainly not going to be the last.”
The Archegos blowup has renewed debate about the possible need for more scrutiny toward family offices and swap positions. Solomon stated the dialogue about transparency round extra advanced fairness positions “deserves debate.”
Correction: Solomon appeared on “Squawk Box.”