Credit Suisse Rats On Morgan Stanley & Goldman In Federal "Block Trading" Probe

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by Tyler Durden
Friday, Feb 25, 2022 - 08:45 PM

Last night, we reported that for the first time, Morgan Stanley acknowledged its involvement in the SEC/DoJ "block trading" investigation that has been discussed in the financial press these past few weeks.

But while Morgan Stanley looks set to take the fall for whatever misbehavior federal prosecutors manage to uncover, it looks like an interloper - Swiss giant Credit Suisse, which has been bogged down by plenty of its own legal issues as of lately - is reportedly trying to help the Feds build a case. We're sure their rivals appreciate it.

Credit Suisse Group AG, saddled with billions of dollars in losses from the collapse of Archegos Capital Management last year, is trying to help the U.S. Justice Department potentially build a case related to block trading against rivals Morgan Stanley and Goldman Sachs Group Inc. The Swiss firm’s push to provide assistance apparently goes beyond banks’ routine cooperation with requests for information, according to people familiar with the matter, who asked not to be identified discussing confidential deliberations.

Last week, Credit Suisse’s representatives delivered a presentation to the U.S. Attorney’s Office for the Southern District of New York, flagging potential issues with Archegos’s collapse in March. No bank was hurt more by the blowup of Bill Hwang’s highly leveraged family office than Credit Suisse, which was left nursing more than $5 billion in losses, a hit that triggered leadership and structural changes. Persuading authorities that other banks acted improperly could help the Zurich-based lender head off regulatory sanctions or even give it a legal edge in recouping some losses.

If Credit Suisse is still furious with its rivals for breaking a pact that led to the bank accumulating billions in losses during the Archegos debacle, well, that's understandable. Although it's not like the bank doesn't have legal problems of its own.

But cooperating with federal authorities to bust its rivals probably wasn't the reaction CS's rivals had anticipated.

Lower down in its report about Credit Suisse's involvement in the "block trading" investigation, Bloomberg offers up some interesting new details about the probe, including how exactly the Archegos collapse intersects with the  rest of the investigation.

According to two of the people, Credit Suisse has sought to spotlight transactions involving ViacomCBS Inc., a major Archegos holding. The company -- now known as Paramount Global - - planned a secondary stock offering, tapping Morgan Stanley to lead the deal.

But before the fundraising closed, the stock started sliding - as did other shares tied to Archegos. They included some U.S.-listed Chinese company stocks, such as GSX Techedu, now called Gaotu Techedu; Vipshop Holdings Ltd. and Tencent Holdings Ltd. Banks soon began demanding more collateral from Archegos to shore up positions, and eventually moved to pull the plug on its portfolio. Morgan Stanley got out with a $911 million loss. Goldman Sachs emerged largely unscathed.

Regulators have opened a wide range of inquiries into the family office’s rise and fall, examining, for example, whether any stock prices were manipulated or banks colluded in their response to the firm’s troubles, people with knowledge of the matter have said. Last week, Bloomberg reported that the incident also led authorities to ramp up an investigation of block trading, a probe that’s been looking in part at whether Wall Street firms have tipped favored clients to transactions big enough to move stock prices.

It looks like Morgan Stanley and Goldman Sachs are finally going to pay for walking away practically unscathed when they were the first to dump those large blocks of Archegos's shares back in March 2021.