Credit Suisse’s $5.5 Billion Archegos Hit Enters Big League of Bank Losses

Credit Suisse Group AG’s CS 4.40% $5.5 billion loss from Archegos Capital Management puts it into the big league of banking mishaps with the likes of Nick Leeson, Jérôme Kerviel and the “London whale.”

Archegos, the U.S. family investment firm of former Tiger Asia manager Bill Hwang, took huge bets on a few stocks with money borrowed from Credit Suisse and other banks. When some large positions reversed and Archegos couldn’t meet margin calls, it triggered one of the biggest sudden losses in Wall Street history.

In addition to Credit Suisse, Nomura Holdings Inc. warned investors of a $2 billion loss from Archegos. Morgan Stanley wrote down $911 million related to the firm and Japanese bank Mitsubishi UFJ Financial Group warned of a $300 million loss.

But Credit Suisse took the brunt of the damage. Its business with Archegos was larger relative to its size than other banks, The Wall Street Journal has reported.

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.

For Mr. Leeson, whose unauthorized trades led to $1.3 billion in losses and the 1995 downfall of Barings Bank, one of Britain’s oldest merchant banks, Credit Suisse’s willingness to continue working with Mr. Hwang after he was barred shows bankers are still susceptible to short-term decision-making fueled by the prospect of quick profits and bonuses.

“Surely this is a guy, like me, that you wouldn’t want to touch in the future. Yet they have, and the only reason for that is there was a huge fee being generated from his business,” Mr. Leeson said in an interview. “It’s negligence, it’s complacency, it’s people not doing their jobs properly.”

A Credit Suisse spokesman declined to comment. A spokesman for Mr. Hwang declined to comment.

It is the latest in a series of huge trading losses that have hit banks.

Morgan Stanley mortgage trader Howard “Howie” Hubler was blamed in 2007 for a $9 billion trading loss that pushed the New York-based securities firm near collapse when the financial crisis exploded a year later.

Société Générale SA shocked world markets in 2008 when it disclosed it had suffered a net loss of €4.9 billion, or $7.2 billion at the time, after unwinding a series of bets placed by Mr. Kerviel. He admitted to engaging in years of unauthorized trades, but said that he was just trying to make money for the bank.

Secret bets that UBS Group AG trader Kweku Adoboli had made soured during one of the most volatile legs of the European debt crisis in 2011, triggering a $2.3 billion loss. Mr. Adoboli was found guilty of fraud and sentenced to seven years in prison.

In 2012, hedge-fund managers and other investors puzzled by unusual movements in credit markets started talking about a deep-pocketed trader dubbed the “London whale.” The London-based JPMorgan Chase & Co. trader at the center of the debacle, which led to more than $6 billion in losses for the bank, was identified as Bruno Iksil. Years later, Mr. Iksil said he was made a scapegoat for trades that were “initiated, approved, mandated and monitored” by senior management.

While risk management has generally improved since the 1990s, trading scandals can’t be entirely ruled out, Mr. Leeson said.

“Controls get tight for a while and everybody’s monitoring everything, and then when profits return and everything’s looking good and everyone’s getting paid big bonuses they just get complacent, they get negligent and these things just happen again,” Mr. Leeson said. “The fallout at Credit Suisse is going to continue for some time.”