Morning Coffee: Credit Suisse could have been saved by banker in tragic accident; learnings from David Solomon's new song
If one man had been alive in late 2020 and early 2021, Credit Suisse might be in a different place today. Instead, he was killed by a freak accident while skiing in Colorado.
Jason Varnish was only 46 when he died. He joined Credit Suisse's London office as an FX trader in 1998 after graduating from the London School of Economics. In the next two decades, Varnish rose to become global head of prime services risk at the Swiss bank. He knew the business well and Credit Suisse said he, “successfully struck the right balance between being commercially minded with clients while maintaining risk discipline for the bank.”
Varnish died in February 2020 after his coat became wrapped around his neck when he fell through a ski lift seat. A friend tried to free him and asked for the lift to be stopped, but the lift operator was reportedly not paying attention initially, and then refused to reverse the lift without permission. Tragically, Varnish suffocated.
In the wake of Varnish's death, the Wall Street Journal says Credit Suisse appointed Parshu Shah, a New York-based prime brokerage salesman as head of risk in the prime brokerage business. Shah had also been at Credit Suisse for 20 years, but it's not clear whether he had any prior risk experience. What is clear is that Shah - who still works for Credit Suisse and who hasn't been accused of any impropriety, had Archegos - the family office behind Credit Suisse's $5.5bn loss, as one of his clients. He may therefore have been slower than a disinterested third party like Varnish to raise flags about problems at the family office.
With Varnish gone and Shah managing prime brokerage risk, the WSJ paints a picture of confusion that led to the huge loss associated with Archegos. The personnel change seemingly contributed to an environment in which Credit Suisse failed to promptly implement the conclusions of an audit into a 2020 loss of $200m relating to hedge fund Malachite. That audit said the Swiss bank didn't correctly anticipate the impact of volatile markets on Malachite's trading strategy, and that an out of date margining system didn't monitor how much risk a position created for a bank in real time as the price of underlying securities changed (this seems to be a fairly fundamental failing given that SecDB at Goldman Sachs has been doing this for decades). Identical failings led to the Archegos loss.
Shah did some things right. Even though he was still new on the job, the WSJ says Shah flagged Credit Suisse's Archegos exposure to the bank's counterparty credit risk team in September 2020, but it doesn't seem that action was taken. The WSJ also suggests that Shah didn't raise sufficient alarm about reports suggesting the growing risk relating to the Archegos' positions subsequently.
Given that Shah is still with the bank, it's unfair to lay too much culpability for the Archegos loss at his feet. - Credit Suisse clearly considers that he wasn't to blame, or it would presumably have let him go along with John Dabbs and Ryan Nelson, the heads of prime broking who left in April. Shah may simply have been catapulted into the role at the wrong time and could hardly have been expected to single-handedly compensated for an outdated margining system. Would Varnish have made a difference? Maybe not. But some people at Credit Suisse clearly think he would, making his untimely death all the more tragic.
Separately, Goldman Sachs CEO David Solomon is releasing a new song under his alter ego DJ D-Sol. The song (henceforth to be known as a 'track') is being released on Friday and Solomon's added the taster below to his Instagram account. The intro is pretty catchy in a Vance Joy sort of way, and could do well if it doesn't descend into an anthemic chorus for the track's remainder.
Solomon seemingly delegated the singing and the songwriting to Ryan Tedder, a musician who's worked with Adele, U2 and Paul McCartney, and who presumably doesn't come cheaply. However, given Solomon's clear enthusiasm for the opening lyrics in the clip below, it's tempting to infer that he too is enjoying the life of a single man and is learning to love himself again after travelling around the world... It might be Goldman's return to the office track this summer.
Meanwhile....
UK financial services vacancies were up 275% month on month in April. JPMorgan and Bank of America had the most vacancies. (Financial News)
Wall Street employment trends worsened in May as layoffs surged more than 34% month on month and new hiring plans declined 88%. Layoffs exceeded new hiring for the first time since July 2020. (Integrity Research)
JPMorgan hired Christopher Dawe from Goldman Sachs as managing partner and global head of growth equity. (Bloomberg)
11 London employees at Ardea Partners, a boutique founded by ex-Goldman bankers were paid $7m in 2020, or an average payout of $636k. (Financial News)
Why decentralized finance is different to bitcoin. If decentralized finance takes root, and one chain or another becomes the dominant platform for it, then its native token will have value. (Bloomberg)
$20bn hedge fund D1 Capital partners signed a 10 year lease for an office at Miami's Coconut Grove. (Miami Herald)
My wife earns $500k a year but keeps spending too much money in the mall. (Marketwatch)
"I thought I was doing everything right: cold showers, intermittent fasting, high-intensity Peloton intervals; but I was “stressing” my system in too many different ways. By failing to settle into the parasympathetic rest and digest state, I had got stuck in a constant adrenal surge." (Financial Times)
"I was hired by Lehman right around the top of the dot-com bubble, and I knew that layoffs would commence soon after the bear market began. They did. I went to work every day for two years knowing full well that I could be the next to go. By some miracle, it never happened, but the psychological toll was enormous." (Bloomberg)
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