Credit Suisse’s Involvement in the Archegos Collapse: Risk Management and Internal Controls

In 2021, the investment bank Credit Suisse Group AG lost an estimated US$6.4 billion from exposure to two hedge fund implosions that occurred within a month. Archegos Capital Management lost US$4.7 billion and Greensill Capital lost US$1.7 billion. Various arrangements between Credit Suisse Group AG and Archegos Capital Management, as well as structural factors at Credit Suisse Group AG, may have contributed to the bank having a higher level of exposure to these collapses than its industry peers. Underlying these miscues were recent changes in leadership, strategy, and tone at Credit Suisse Group AG. All three of these changes appeared to have collectively impaired the skepticism and voice exercised by its risk management group. In July 2021, Credit Suisse Group AG replaced its chief risk officer in an attempt to reshuffle its risk and compliance leadership. The task of the new chief risk officer was to reshape Credit Suisse Group AG’s risk management framework and internal controls, from the top to the bottom.

This case can be used in undergraduate- and graduate-level courses on managerial accounting, finance, investments, and strategy. It introduces content for undergraduate audiences, focusing more on the “what,” while graduate audiences can be directed toward greater tactical detail, focusing more on the “how.” The case builds on performance measures, incentive systems, balanced scorecards, and internal controls in a managerial accounting course, allowing students to practice and build their own balanced scorecard and present recommendations to focus on long-term sustainable solutions. The case requires a basic understanding of managerial accounting principles and is best suited for upper-level undergraduate students and graduate students. This case explores a recent widely relevant intersection of risk management challenges in a financial context. The case details risk management and internal controls in a financial context. After working through the case and assignment questions, students will be able to accomplish the following objectives:<ul><li>Understand the risks and trade-offs of emerging financial instruments; in particular, total return swaps.</li><li>Evaluate the self-reinforcing mechanics of leverage, margin calls, and bankruptcy.</li><li>Assess the risk management function, including both risk identification and risk mitigation.</li><li>Discuss internal controls and their role, including comparing and contrasting internal controls with risk management.</li><li>Understand the importance of tone-at-the-top and the climate created by the senior leadership team.</li><li>Discuss the ethical and management challenges surrounding properly functioning risk management and internal control systems.</li><li>Understand the ethical tensions that exist between profit and other motivations in the investment banking industry.</li></ul>

• risk management
• total return swaps
• internal controls