Credit Suisse takes axe to prime broking after multibillion-dollar loss.Has the Domino Effect began?

Updated: Nov 14, 2021

Since the sudden spectacular implosion of family office, Archegos Capital Management, in late March, many has speculated about the ultimate fate of Hedge funds around the world.

When the story was uncovered, it was shocking to discover how leveraged can one get, especially in this well-connected world, where information exchange takes place within spilt second.

Today as I chanced upon this latest update on Credit Suisse, I marveled at the potential impact of exposure from one single client can have on a huge bank like Credit Suisse. And everytime we heard of negative events happening to banks, we get worried because we trust the banking system enough to park our funds inside and we do that so that we can sleep well at night knowing that our assets are kept safe.

Quoted from FT, “Risk management will be at the core of our actions, helping to foster a culture that reinforces the importance of accountability and responsibility,” Horta-Osario said in a statement on Thursday."

The lesson that we can draw from this is that, if big banks that has a team of professional risk managers (and perhaps actuarial analysts, fund manager) can underestimate the amount of risks that they are taking on with their investments, we, as ordinary folks should also practise prudence in our investment strategies. Higher risk does not necessary equate to higher returns in the real world although we are somehow "programmed" since schooling days to think that if we pump our funds into a riskier asset, we have a greater chance at a windfall. Unfortunately, it does not always work out in our favour.

Sometimes, I suspect we are in the Euphoria stage of the market cycle where everybody just keep on taking on more and more leverage and more and more risks, all in the name of FOMO (fear of missing out). End of the day, we just have to reflect on our decisions regularly and whatever happens, we have to take responsibility of our decisions.

“Bull markets are born on PESSIMISM, grow on SKEPTICISM, mature on OPTIMISM and die on EUPHORIA.” - Sir John Templeton

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