Goldman Sachs CEO David Solomon said on Tuesday that his bank’s risk management systems worked well after the forced deployment of a high-leverage fund took several shares in the US and China and took a bite out of many billions of dollars from other banks.
Shares of Discovery and ViacomCBS fell dramatically in March, after investment banks began buying large blocks of shares at very low prices after a client failed to meet margin requirements. The client was widely regarded as the family office of Archegos Capital Holdings, a fund with a high level of leverage led by Bill Hwang.
The forced sale caused an estimated $ 4.7 billion loss to Credit Suisse, where two directors announced their resignation on Tuesday. However, Goldman did not report material losses on transactions.
“From my perspective, our risk controls worked well. We identified the risk from the beginning. We took prompt and corrective action to reduce our risk in accordance with the contract we had with the client,” Solomon told ” Squawk on the Street ”by CNBC. “And I can’t really talk about what other banks have done and how they’ve handled the situation, but I’m very happy with the way our team has handled it.”
Hwang made his bets concentrated on stock swaps, where the investment banks he worked with officially owned the shares and used a high leverage in trading. When stocks declined and could not meet its capital requirements, banks remained in possession of large chunks of stocks.
“I think this is a classic case of an investor with concentrated positions that have a leverage effect against them. And when the price moves against them, it’s important to take the risk … It’s not the first time this has happened. thing and it’s definitely not going to be the last, “Solomon said.
The Archegos explosion renewed the debate on the possible need for more control over family offices and exchange positions. Solomon said the discussion of transparency around more complex capital positions “is worth debating,” but declined to say whether it is appropriate to work with Bill Hwang, given his previous issues with privileged transactions.
“I don’t think the return and second assumptions of this kind are the answer to that,” he said.