Rusty and I are thrilled to announce that Marc Rubinstein will be joining us as a guest contributor
What Sort of Business is Investment Banking?
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“Despite extending billions of dollars of credit to Archegos, Credit Suisse made just $17.5m from the relationship last year.”
Turns out Credit Suisse should also be asking what sort of business is investment banking. Maybe they can get the notes from a friend.
A lot of investment banking is simply option-writing - just look at the long term chart of Lehman earnings (unleveraged). Haven’t seen asymmetry impose itself as quickly as in this case though!
I too worked there. Intimately familiar w/ the delta one desk risk management. It is the classic case of end of day risk looks great every single day for years, despite notional building up, because you think you are “fully hedged” - particularly on a winning trade where you never have the remotest test of your client’s ability to meet the margin call.
The very name, Delta One shows what it is all about - the client get’s Delta of 1 and the Firm, “fully hedged” carries a Delta of 0. The VAR calc thinks things are peachy.
Until it all falls apart.
As for CS as a whole, the '08 crisis gave them the fortress balance sheet to move into the Prime business big time, going to # 1, 2 or 3 in the EMEA, WHEM, APAC markets. But once the Basal 3 and Tidjane contraints kicked in, back to #5,6,7 they fell - but with the hangover of thinking they could still punch at a 1,2,3 weight. And, the overall purge of the 1,2,3 crowd in favor of UBS 5,6,7ers didn’t help.
Another take on it: https://www.risk.net/our-take/7831411/how-credit-suisse-fell-victim-to-its-own-success
Good trip down memory lane. I would argue- but I am biased, represented Paladyne Systems from start-up through sale to Broadridge, that Paladyne saw the technology opportunity in prime brokerage and took it to Credit Suisse. We pioneered the multi-prime model in the marketplace. The stars aligned post-Lehmann and ‘08, to take CS to the top 3. And we encouraged CS to take credit in the media.