Researchers identify five new cases of ‘double mutant’ Covid variant in California - https://cnb.cx/3wyaNpL
KEY POINTS
- A variant of the coronavirus that has two mutations was recently detected in the San Francisco Bay Area by researchers at Stanford University.
- Five more cases of the “double mutant” strain have been detected since.
- This particular variant originated in India and is responsible for a recent 55% surge in the Maharashtra state region of the country following months of falling cases.
Stanford University researchers have identified five new cases of a “double mutant” Covid-19 strain that was recently discovered in the San Francisco Bay Area. Doctors suspect it could be more contagious and may be resistant to existing vaccines.
The new variant originated in India where it’s credited with a recent 55% surge in cases in the Maharashtra state, home to Mumbai, after months of declining cases.
It contains two key mutations, which scientists call E484Q and L452R, that have been found separately in other variants but not together in a single strain, according to Dr. Benjamin Pinsky, medical director of Stanford’s clinical virology laboratory, which discovered the new variant in the U.S.
“There’s a decent amount of information of how these mutations behave in viruses on their own, but not in combination,” Pinsky said in an interview.
In other variants, the L452R mutation has been shown to make the virus more transmissible. There is also evidence that antibodies don’t recognize that mutation, which has been found in other strains to reduce the effectiveness of vaccines.
The E484Q mutation has also been shown to be less susceptible to neutralizing antibodies, which help fight the coronavirus. It’s still too early to tell if the mutation makes the virus more contagious.
“But you’d expect that in combination with L452R that there may be an increase in transmission as well as reduction in antibody neutralization,” Pinsky said.
If the mutation makes the virus more resistant to antibodies, that could reduce the effectiveness of both vaccines as well as antibody treatments that have become a critical tool for doctors in fighting Covid-19, according to Pinsky.
“I suspect that existing vaccines will be slightly less effective in preventing infection by this new variant,” he said, “but all of the vaccines are extremely effective in preventing hospitalizations and deaths.”
Eli Lilly’s bamlanivimab antibody treatment has been shown to be less effective in treating strains that contain the E484Q or L452R mutations. U.S. health regulators halted distribution of that antibody treatment last month, saying it wasn’t that effective against the new variants.
The double mutant variant “has known mutations in the scariest place to have a mutation — the receptor binding domain, where the virus uses to latch on to cells in our bodies in order to enter,” said Peter Chin-Hong, an infectious diseases expert at the University of California San Francisco. “The mutations are either identical or eerily similar to mutations in variants that we already know about that have been scientifically proven to be more transmissible and/or evade vaccines. Hence many believe that this Indian variant will also have these superpowers.”
Tom Kenyon, Chief Health Officer at Project HOPE and the Former Director of Global Health at the Centers for Disease Control and Prevention said scientists are finding more mutations, at least in part, because the new CDC Director Dr. Rochelle Walensky directed the agency to increase surveillance. “So the more that we look for these, the more we’re going to find them,” he said.
“There’s something about the world ‘double’ that scares people and makes it sound like it’s double-bad,” Kenyon said in an interview. “Any mutation affecting transmissibility or viral replication would be dangerous.”
There’s a possibility the new variant will stay in the Bay Area, unlike the B.1.1.7 variant from the United Kingdom that has become the predominate strain just about anywhere it goes, Chin-Hong said.
“If the UK variant went into a boxing ring with the Indian variant, the UK variant will probably emerge victorious. But only time will tell,” Chin-Hong said.
The longer it takes to vaccinate the world, the more opportunities the virus has to mutate into even worse strains, scientists say. The CDC’s Walensky has warned of “impending doom” in the U.S. as states roll back Covid-19 restrictions. She’s urged people to get vaccinated and continue following public health precautions, including wearing masks and practicing social distancing.
“The variants that scare me the most are the ones that haven’t been invented as yet ... the more the virus replicates, we will continue to see these escape mutants,” Chin-Hong said. “We need global vaccination equity and continued battles against pandemic fatigue.”
California is set to lift most Covid restrictions by June 15, but still plans to keep a mask mandate in place.
Gapping down
In reaction to earnings/guidance:
- LNDC -11.8%, APOG -5.6%
Other news:
- BOX -8.1% (confirms $500 mln investment from KKR (KKR) in the form of convertible preferred stock; KKR executive to join BOX Board following deal)
- AMRS -7.1% (commences private offering of $250.0 mln shares of common stock by co and selling shareholders)
- OTIC -4.5% (prices offering of 6,288,890 shares of its common stock at $2.25 per share)
- PRGS -2.2% (convertible notes offering)
- IEA -2% (stock offering)
- KDNY -2% (files for $275 mln mixed securities shelf offering)
- EDAP -1.4% (files for $125 mln mixed securities shelf offering)
- PHR -1% (prices offering of 4.5 mln shares of common stock at $50.00 per share)
- IONS -1% (priced $550.0 million aggregate principal amount of 0% Convertible Senior Notes due 2026)
Analyst comments:
- WW -3.5% (downgraded to Equal-Weight from Overweight at Morgan Stanley)
- FFIV -2.8% (downgraded to Neutral from Outperform at Credit Suisse)
- NXPI -1.2% (downgraded to Equal-Weight from Overweight at Morgan Stanley)
- LHX -1% (downgraded to Neutral from Buy at Goldman)
Gapping up
In reaction to earnings/guidance:
- RGP +5.1%, CAG +0.7%
Other news:
- CNBKA +23.2% (Century Bancorp to be acquired by Eastern Bankshares (EBC) for $115.28 per share)
- EBC +8.1% (Century Bancorp to be acquired by Eastern Bankshares (EBC) for $115.28 per share)
- MASS +4.9% (provides handheld mass spec for trace detection to U.S. Border Patrol)
- INVE +4% (prices 3.29 mln share common stock offering at $10.65/share)
- PLL +3.4% (increases resources by 40%)
- FPI +3.2% (stock offering)
- GME +3.1% (Board intends to elect Ryan Cohen as Chairman)
- AZN +3% (Italy will start recommending AZN vaccine only for people over aged 60, according to Reuters)
- VLRS +3% (reports March traffic data)
- BNGO +2.2% (announces presentations on optical genome mapping at AACR)
- HHC +2.1% (Correne Loeffler has been appointed to serve as the company's Chief Financial Officer, effective April 19)
- NTST +1.9% (prices offering of 9,491,903 shares of its common stock at $18.65 per share)
- GBT +1.7% (reports Phase 3 HOPE study of Oxbryta Tablets published in The Lancet Haematology)
- SBBP +1.5% (announces publication of diabetes subgroup analysis)
- TWTR +1.2% (has discussed a $4 bln deal to buy audio chat app Clubhouse, according to Bloomberg), .
Analyst comments:
- BSIG +8% (upgraded to Overweight from Equal-Weight at Morgan Stanley)
- ALRM +3.4% (upgraded to Outperform from In-line at Imperial Capital)
- CARG +3.3% (upgraded to Outperform from Mkt Perform at Raymond James)
- MSM +3% (upgraded to Overweight from Equal Weight at Wells Fargo)
- TXT +2.4% (upgraded to Buy from Neutral at Goldman)
- VNOM +1.4% (upgraded to Overweight from Neutral at Piper Sandle)
- USB +1.1% (upgraded to Overweight from Neutral at JP Morgan)
ACS approaches Atlantia over €10bn Italian motorway network
Italian group has been under pressure to relinquish control of the business
Spanish construction group ACS has approached Italy’s Atlantia to buy the country’s largest motorway network for up to €10bn, offering to outbid a group led by Italy’s state-controlled investment fund, according to a letter obtained by the Financial Times.
The approach is a fresh twist in a multiyear saga over the future of Autostrade per l’Italia (ASPI), Italy’s main toll road operator. Atlantia has been under pressure to relinquish control following the lethal collapse of the Morandi bridge in Genoa in 2018.
ACS, run by one of Spain’s richest men Florentino Pérez, is hoping to add ASPI to its network of global toll roads, which it runs through holdings in Abertis, a company it part owns with Atlantia.
“Given the close relationship between our groups following the successful joint acquisition of Abertis, ACS has been following the ASPI situation during the last months and we believe ASPI is a very interesting asset that perfectly fits ACS’s long-term strategy,” Pérez wrote in the letter.
He said ACS was valuing ASPI at between €9bn and €10bn, based on an analysis of public information.
Pérez added that ACS would be willing to accommodate other investors in his offer, including Cassa Depositi e Prestiti, the Italian state fund that has been working with a consortium of investors including Blackstone and Macquarie on a rival deal.
Atlantia’s board is meeting today to discuss the proposal received last week by the funds led by CDP, which valued ASPI at about €9bn. Atlantia owns an 88 per cent stake in ASPI.
Atlantia declined to comment on ACS’ interest. One person close to the talks said the letter would be discussed today but it was “premature to make any further assessment on it”.
Chris Hohn, the London-based hedge fund manager whose firm TCI has a 10 per cent economic interest in Atlantia, told the FT that he welcomed the interest from ACS.
He expected Atlantia’s board “to engage promptly and professionally to explore the opportunity of a combination of Abertis and ASPI.”
Hohn added: “ACS-Abertis seem prepared to offer a higher price than CDP for Aspi and are clearly a superior industrial partner than Blackstone and Macquarie. ASPI should be allowed to be sold to the highest bidder without interference from the Italian government.”
Italy’s new government, led by Mario Draghi, has so far taken a less interventionist stance than its predecessor on the sale of ASPI.
Enrico Giovannini, transport minister, told Italian media last month he hoped the matter would soon be solved to allow the company to focus on maintenance and infrastructure investments.
Italy’s former government, led by Giuseppe Conte, threatened to strip Atlantia of concessions to operate the toll roads as a way to punish the billionaire Benetton family, which has a controlling stake in Atlantia, for the Genoa bridge collapse. The current agreement to run the motorways ends in 2038.
Italy would have to pay Atlantia more than €20bn in compensation if it terminates the contract before its expiry date.
Last summer, Atlantia and the government agreed to negotiate a sale of the stake to a group of investors led by CDP.
The approach from ACS comes just days after the Spanish group agreed to sell its energy business to France’s Vinci for €4.9bn.
Why Coinbase’s stellar earnings are not what they seem
It’s easy to be profitable if your real unique selling point is being a beneficiary of regulatory arbitrage.
Coinbase, one of the most popular crypto exchange and wallet services operating in the regulated financial sector, shared its first-quarter earnings on Tuesday ahead of its Nasdaq direct listing on April 14.
Top line results showed revenues sky rocketing to $1.8bn in the first quarter of 2021 versus $191m in the same period last year, with net income climbing to c$730m.
Other stand out numbers included the service reaching 56m verified users, trading volume of $335bn, and its $223bn worth of assets, setting the crypto service up for a valuation of up to $70bn.
Twitter folk quickly forged a consensus that such figures prove not only that Delaware-incorporated company is a profit-minting machine but that crypto itself can no longer be ignored by traditional finance.
As John Street Capital tweeted in an illuminating Twitter thread:
But it’s worth reminding investors that the stand out concern remains that the current framework under which Coinbase is regulated (a money transmission one) is not at all suited to regulating its broader activities, among them its exchange activity and principal-trading operations.
This is important because if Coinbase’s regulatory status were to change (and regulatory ambiguity is clocked in the company’s S1 risk factors) the company could be forced to drop many of these hugely profitable activities or be forced to operate at a much higher capital cost.
In an upcoming qualitative review of the regulatory status of 16 crypto exchanges Martin Walker, director at the centre for evidence based management and a fintech consultant, and co-author Winnie Mosioma, the founder of the Blockchain Legal Consultancy, argue that these sorts of inconsistencies will have to be closed if these platforms are to compete in the formal financial sector:
The context, they note, is cryptocurrency’s inherent dependency on multilateral exchanges for facilitating price discovery. This contrasts to bitcoin predecessors such as Liberty Reserve or E-gold, which only needed to be serviced by third parties prepared to exchange digital currencies for the corresponding linked assets for a fee.
Since crypto regulations have largely failed to address this dependency, this has led to a patchwork of conflicting regulatory approaches, many of which entirely ignore any corresponding trading activity or facilitation.
A case in point is that seven of the most prominent US exchanges, including Coinbase, operate as licensed Money Service Businesses (MSBs) or equivalent. This classification ensures the platforms must be registered with the financial crimes enforcement network (FinCEN) in the US, and/or the Financial Conduct Authority in the UK, but it does not mean their trading activities are supervised in any formal manner.
As the authors note:
Coinbase may be a hugely profitable business, but it may also be a uniquely risky one relative to regulated trading venues such as the CME or ICE, neither of which are allowed to take principal positions to facilitate liquidity on their platforms. Instead, they rely on third party liquidity providers.
Coinbase, however, is not only known to match client transactions on an internalised “offchain” basis (that is, not via the primary blockchain) but also to square-off residual unmatched positions via bilateral relationships in crypto over-the-counter markets, where it happens to have established itself as a prominent market maker. It’s an ironic state of affairs because the netting processes that are at the heart of this system expose Coinbase to the very same risks that real-time gross settlement systems (such as bitcoin) were meant to vanquish.
According to its S1 filing, up to 11 per cent of the company’s revenue was sourced from other revenue which includes the sale of crypto assets where Coinbase itself is the principal in the transaction.
As the document explains (our emphasis):
The 11 per cent figure might sound like a small amount, especially given the cost of capital necessary to facilitate it, but its impact on broader profitability is likely to be far more wide reaching, given that liquidity breeds liquidity.
Craig Pirrong, a professor at the University of Houston and established expert on commodity and exchange regulation, agreed that Coinbase’s principal-based activities make comparisons with conventional exchanges redundant.
As he noted to FT Alphaville on Wednesday:
The fact that by Coinbase’s own admission “judgment is required in determining whether the Company is the principal or the agent in transactions between customers” speaks volumes about the potential conflicts at hand.
Coinbase downplays these risks by stating it does not bear inventory risk from its principal trading activities because it is “not responsible for the fulfilment of any crypto asset”. But that can also be interpreted to mean that Coinbase only engages as a counterparty with its own customers when it pays for them to do so, undermining the argument that its principal trading activity is always in the interests of its clients.
A last point of concern is that Coinbase readily admits in its S1 to engaging in prime-broker type activities, for which it is also not regulated, notably by offering credit-based products and services to institutional customers and post-trade credit. In particular, it notes:
Again, this is not the sort of activity a conventional exchange would be allowed to engage in due to conflict of interest reasons. Indeed, one need only to read Michael Lewis’ Flash Boys to understand how such asymmetries might upset buyside operators in the long run.
What’s more, when you consider the bitcoin economy was forged through the sweat of crypto-promoters claiming the standing system is not to be trusted because it is underpinned by evil credit-based transactions . . . again, it all feels a little too ironic. Don’t you think?
Coinbase did not reply to our questions, and we will update the post if they do.
After Wirecard, Germany’s Proposed Audit Overhaul Worries Finance Executives
Proposed legislation calls for higher fines for audit firms and more oversight of regulator BaFin
Auditors and finance chiefs of some of Germany’s biggest businesses are worried that a new regulatory proposal intended to improve audit quality in the wake of the Wirecard AG scandal will lead to higher costs and less competition.
German lawmakers currently are debating draft legislation for the so-called Act to Strengthen Financial Market Integrity. The law is expected to pass over the next few months, ahead of the country’s national elections in the fall.
The current proposal stipulates that audit firms pay higher fines for wrongdoing and auditors themselves take unlimited personal liability if found grossly negligent. Companies face a mandatory change of auditors in certain cases and are required to rotate audit firms every decade. The draft legislation also suggests stricter supervision of the banking regulator BaFin.
The proposed law, which was drafted in a matter of weeks, comes after the disclosure last June that Wirecard, a once highflying electronic-payments company, had a $2 billion accounting hole. This triggered various investigations into the company, its auditor Ernst & Young, and how regulators missed it. Companies and auditors said they welcome the intent of the proposed law but worry that rules are being made even before investigations into what went wrong at Wirecard are complete.
“In its current version, the draft law contains provisions whose effects are more than problematic,” said Luka Mucic, chief financial officer of German software giant SAP SE.
Mr. Mucic is among 31 CFOs of German companies who sent a letter in February to the government voicing their concerns about some of the clauses of the planned legislation, including the requirement that a company auditor be removed in cases of perceived conflicts of interest. Such instances can occur, for example, when an audit firm reviews a company’s financial statements and another arm of the firm provides nonaudit services such as tax consulting to a company executive, potentially in another country.
“It would make sense to wait for the findings and results before hastily drafting a new law,” said Andrea Bruckner, a member of the executive board at BDO, a professional services firm.
Germany’s auditing landscape looks similar to that of the U.S. and the U.K., with the Big Four companies—Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers—dominating the market. There are several smaller international and local players that are eager to gain market share, but they worry that the proposed rules could hinder them.
CFOs, especially those at companies with dozens of foreign subsidiaries, point to the practical challenges of switching auditors over a perceived conflict of interest. A sudden order to change audit firms while the audit process is ongoing could be very distracting and endanger companies’ ability to present audited financial statements and pay dividends. “I don’t think this is feasible,” said Ralf Thomas, CFO of industrial company Siemens AG.
Mr. Thomas and other executives also fear that the proposed law could result in higher audit charges. If audit firms take on increased liability, as suggested by the proposed law, it could potentially drive up their insurance costs, which could then be passed on to corporate clients.
The changes could result in increased market concentration, with the numbers of small- and medium-size audit firms shrinking, said Volker Krug, the chief executive of Deloitte in Germany. Deloitte is a sponsor of CFO Journal. EY, PwC and KPMG declined to comment for this article.
Some small audit firms say they are considering whether it makes sense to stay in business.
Karl-Heinz Brosent, who heads up German audit firm Greis & Brosent GmbH in Düsseldorf, expects the company’s insurance costs could rise to about €50,000, or roughly $59,337 annually, up from €30,000 annually. “We would either have to raise prices,” or stop offering these services, he said.
Mr. Brosent, who has worked as an auditor for more than 32 years, fears that a potentially unlimited personal liability will deter some people from choosing or continuing with the auditing profession. For the past couple of years, the number of auditors in Germany has held flat at about 14,650 people, according to the association of auditors WPK.
Lawmakers say that the hefty liability clause only applies in cases of gross negligence. But auditors say it could be a matter of semantics. “It is difficult to differentiate between minor and gross negligence,” said Martin Wambach, a partner at Rödl & Partner GmbH, a German audit firm.
Another industry organization, Institute of Public Auditors, suggests that giving auditors more power to assess a company’s corporate governance and adding a compliance-management program could help, said its CEO Klaus-Peter Naumann.
The draft legislation has the support of Chancellor Angela Merkel’s grand coalition of Conservatives and Social Democrats, and could pass without major changes. Some opposition lawmakers have criticized the proposed law as an attempt to redirect attention away from BaFin, which falls under the finance ministry. Olaf Scholz, a Social Democrat who serves as finance minister, is among the candidates looking to succeed Ms. Merkel.
German regulator BaFin is under pressure for its slow response to Wirecard’s growing problems, which became apparent long before the company admitted that its missing funds likely never existed. The German government dismissed the head of the agency earlier this year.
The proposed law, however, extends BaFin’s powers, giving it more oversight over companies’ financial reporting, strengthening its collaboration with market participants, offering more reporting opportunities for whistleblowers and setting up a new data-intelligence unit. BaFin will also be able to conduct its own forensic investigations and work more closely with public prosecutors.
“The proposal strengthens BaFin,” said Florian Toncar, a lawmaker for the Free Democratic Party, one of the opposition parties. However, he pointed to the regulator’s internal silo structure and lack of communication that also led to problems. “You don’t need to change the law to address these issues,” Mr. Toncar said.
Credit Suisse Ignored Warnings Before Archegos and Greensill Imploded
Bank is examining how, after years of beefing up compliance and risk, it pushed into risky trades that it couldn’t easily exit
Credit Suisse Group AG’s CS -0.91% double-barreled financial crisis shares a common theme: a bank that looked the other way when warning signs argued for pulling back on lucrative corners of its business.
The Swiss bank with a big Wall Street presence was caught off guard starting in late February when $10 billion in complicated investment funds it ran with financing firm Greensill Capital unraveled, despite years of internal warnings about the relationship.
Then it lent more than other banks on big, concentrated positions to Archegos Capital Management, run by longtime client Bill Hwang. Though Archegos was flagged as a client of special interest, Credit Suisse acted more slowly than other banks, and ended up on the wrong side of a fire sale.
The bank said Thursday it would take a $4.7 billion charge on the Archegos trade, equivalent to more than a year’s worth of profit. While it hasn’t put a number on the Greensill damage, a preliminary assessment inside the bank says losses to Credit Suisse investors may hit $1.5 billion, according to a person familiar with the bank.
In a statement Monday, Credit Suisse Chief Executive Thomas Gottstein said, “We are fully committed to addressing these situations. Serious lessons will be learned.”
The bank is now in full crisis mode. Credit Suisse’s supervisory board launched investigations into executives involved in decision making. It is also examining how, after years of beefing up compliance and risk, the bank pushed into risky trades that it couldn’t easily exit. The stock has lost nearly a quarter of its value since late February.
On Tuesday, Lara Warner, head of a risk and compliance unit that was supposed to make the bank safer, stepped down. Her teams reviewed both situations in recent months, according to people familiar with the bank’s operations.
The head of the investment bank, Brian Chin, and others who handled Archegos were also pushed out.
Credit Suisse has lurched from crisis to crisis in recent years, repeatedly promising to protect investors with better systems to measure risk and prevent bad situations from getting worse.
An internal spy scandal brought down its previous chief executive, Tidjane Thiam. Then last year, Luckin Coffee Inc., a prominent Chinese client, disclosed an accounting fraud that caused losses for Credit Suisse on a loan it made to Luckin’s founder. A former client is suing the bank for around $800 million for ignoring alerts that a Credit Suisse banker stole from him for years. And the bank faces lawsuits and regulatory fines over $2 billion in fraudulent lending in Mozambique.
Current and former bank executives say Credit Suisse’s problem is that it never focused on one thing after the financial crisis, choosing to maintain an investment bank and an asset-management arm tacked on to a private bank catering to the world’s rich.
The idea was that these parts could work together, moving clients from one arm of the bank to the other.
In reality, the asset-management unit, which brought in Greensill, and the investment bank, which handled Archegos, were too small to square off with Wall Street giants. The bank tried to make more money from fewer clients than rivals with larger balance sheets and ended up overlooking risks, the executives said.
More risks may lurk inside Credit Suisse. Last year it was Wall Street’s biggest underwriter in blank-check companies, known as SPACs. Its asset-management arm is also among the top managers of collateralized loan obligations, pools of risky loans that are sliced and diced and bought by investors. Both are areas financial regulators fret about.
The bank landed a hit in 2017 when a Credit Suisse fund that invested in Greensill’s supply-chain finance loans took off. Eric Varvel, the bank’s asset-management chief, told prospective investors they could invest on a short-term basis, “similar to the money market,” for attractive returns, according to a Credit Suisse client magazine.
Yet red flags were raised even before the funds launched. Members of Credit Suisse’s credit-structuring team, who knew Lex Greensill’s business, lobbied against working with Greensill on the funds, according to a person familiar with the funds.
Another group in the bank working on commodity trade finance had stopped doing business with one of Greensill’s biggest clients, U.K. steel magnate Sanjeev Gupta, according to people familiar with the relationship. They had identified suspicious shipments during a compliance check, one of the people said.
More warnings came in 2018, when Swiss investment manager GAM Holding AG suspended, and later fired, an employee over investments he made with Greensill and some of Mr. Gupta’s companies. GAM said at the time that money in the fund in question was returned to investors.
A spokesman for Mr. Gupta declined to comment.
The GAM situation prompted Credit Suisse to review the Greensill funds, according to executives from that time. Ms. Warner, who was seen by colleagues as tough on rules, and others were involved in the review. Credit Suisse’s fund managers in Zurich took a defensive stance. The funds were making tens of millions in management fees.
A former bank executive who asked the team running the funds basic questions said they belittled his concerns, and said the funds were fully protected.
The review didn’t find enough concerns to demand any changes to the funds, according to the executives from that time.
In 2019, members of the credit-structuring team escalated its alerts about Greensill to the bank’s reputational-risk committee, the person familiar with the funds said. They had become concerned Greensill might be taking operational shortcuts.
But by December 2019, the funds had tripled in the year to $9 billion. The asset-management arm sold the funds to rich clients and companies looking to eke out returns in an era of negative interest rates in Europe.
In February 2020, Mr. Thiam resigned in the fallout of a spying scandal, triggered when an executive leaving for rival UBS Group AG spotted someone following him and went to the police. Mr. Gottstein, at the bank since 1999, became chief executive.
But as the coronavirus spread, jittery investors pulled cash from the Greensill funds. It turned out Credit Suisse was acting as Greensill’s main source of off-balance sheet financing.
Without the money, Greensill would go bust
Greensill’s biggest outside investor, SoftBank Group Corp.’s Vision Fund, came to the rescue. It struck a deal with Credit Suisse and Greensill to inject $1.5 billion into the funds, The Wall Street Journal previously reported, citing people familiar with the matter.
The Greensill relationship deepened in other parts of the bank. It lent money to Mr. Greensill’s family trust in Australia through its Asia-Pacific bank, secured on Greensill’s assets, according to a person familiar with the loan.
Few people beyond Ms. Warner and other senior executives were aware of the full picture, according to the executives from that time, because confidentiality rules compartmentalized client business across divisions.
In October, Greensill asked Credit Suisse for a $140 million loan after the startup was having trouble raising fresh capital from outside investors.
The bank’s London risk managers initially rejected the application, spooked by reports that Germany’s banking regulator was probing Greensill’s banking unit over its exposure to Mr. Gupta. Counterparts in Zurich and the bank’s Asia-Pacific operations soothed their concerns, and Greensill agreed to put up additional collateral, according to the people familiar with the bank’s operations.
The loan went to Ms. Warner, whom Mr. Gottstein had promoted in July to head a combined risk and compliance unit. Such transactions rarely crossed her desk, but there was extra sensitivity because of the earlier review, the people said.
She and other executives approved it, confident that Credit Suisse was well protected from loss by a pledge on $50 million cash in a Greensill bank account and around $1 billion in Greensill receivables, the people said.
But Greensill was in trouble. On Feb. 22, Ms. Warner learned Greensill’s vital credit-insurance coverage was ending, according to Credit Suisse. Credit Suisse froze the funds March 1.
Three weeks later, another major Credit Suisse client was on the rocks: Archegos.
Credit Suisse and Mr. Hwang had a long relationship. The bank was a prime broker to his hedge fund Tiger Asia Management. The fund pleaded guilty to wire-fraud charges related to insider trading of Chinese stocks in 2012, and Mr. Hwang was barred by U.S. securities regulators from managing client money.
Mr. Hwang formed a family office, Archegos, and Credit Suisse again served as a prime broker. In 2015, the bank’s reputational-risk committee reviewed its relationship with Mr. Hwang, according to a person familiar with the review. It decided Archegos would receive extra scrutiny, the person said.
Mr. Hwang wasn’t putting outside clients’ money at risk, a factor that gave Credit Suisse comfort in keeping him on as a client, the person said.
Credit Suisse took on more risk with Archegos relative to its size, according to people familiar with the Archegos trade, than did players such as Goldman Sachs Group Inc. and Morgan Stanley.
In the weeks leading up to the meltdown, Credit Suisse investment-banking executives discussed ways to bring down its exposure to Archegos. One option was to raise margin requirements on Archegos, said people familiar with the discussions.
The bank opted not to act.
When Archegos’s big positions began to sour, the hedge fund asked its lenders to meet. Credit Suisse argued for a take-it-slow approach, partly to protect Mr. Hwang, according to the people familiar with the bank’s operations.
Other banks beat Credit Suisse to the exit, leaving it with large positions to dump at a loss.
Mr. Gottstein reeled at the fresh disaster, according to the people familiar with the bank’s operations. Credit Suisse’s board then broadened a review of Greensill to include the bank’s entire risk culture.
The bank’s top shareholder, David Herro of Harris Associates, said he argued for keeping Mr. Gottstein in place but said the bank had to get risk under control.
Early premarket gappers
- Gapping up:
- CNBKA +13%, CYDY +10%, RGP +5.1%, EBC +4.2%, AZN +3.6%, SBBP +2.6%, BNGO +2.2%, PLL +1.9%, GBT +1.7%, TWTR +1.5%, HRZN +1.2%, KKR +1.2%, MRNA +1.2%, GILD +1.1%, ABB +0.8%
- Gapping down:
- LNDC -8.2%, AMRS -6.6%, IEA -2.7%, APOG -2.7%, PRGS -2.1%, OTIC -2%, KDNY -2%, EDAP -1.4%, PHR -1.3%, FPI -1%, MRVI -0.8%, NTST -0.6%