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A $5.5 Billion Reminder that Email is Not Work

August 12th, 2021 · 19 comments

Last winter, a risk analyst at Credit Suisse noticed that one of their clients, a hedge fund named Archegos, was light on collateral. As is common in this world of high finance, Credit Suisse had loaned Archegos money to buy stock. The value of Archegos’s position had come down and the bank’s models were saying that the bank either needed more collateral from the fund, or needed to push Archegos out of their position by calling in the loan.

So far, pretty normal stuff.

As detailed in a report on the incident, compiled by the law firm of Paul, Weiss, Rifkind, Wharton & Garrison LP, and released last month, the issue was what happened next.

The analyst at Credit Suisse and the accounting manager at Archegos fell into a communication rhythm all too common in our current age of the hyperactive hive mind. The analyst asked to setup a meeting with the manager. The manager replied, in effect, “I’m busy, let’s try tomorrow.” The next day, he said to just send over a proposal. A week and a half pass before the analyst asks for “thoughts” on the proposal. The manager said “he hadn’t had a chance to look at it yet” but would try to get into it “today or tomorrow.”

Then the stock prices fell more. Archegos’s position collapsed. Without the extra collateral, Credit Suisse lost $5.5 billion.

As Bloomberg’s Matt Levine explains in a recent column on the debacle, what makes this case intriguing is that there is not “some fancy finance thing that went wrong,” nor is it a story of “individual stupidity or greed or recklessness.” As he summarizes:

It’s just that they sort of kept each other in the loop as a substitute for actually doing anything. The processes were all moving along nicely, which gave everyone a false sense of security that they would produce the right result.”

I couldn’t think of a better case study for the illusory, performative pseudo-value generated by the hyperactive hive mind. The players in this story were for sure feeling very productive: furiously typing on devices, messages moving back and forth, bases being touched, plates spun, their industry palpable.

But the actual activity that mattered, the realization that they were short on collateral and urgently needed to reduce their investment exposure, was missed. Ad hoc, back-and-forth, unscheduled messaging kept everyone busy. But it didn’t actually work.

19 thoughts on “A $5.5 Billion Reminder that Email is Not Work

  1. EA says:

    Probably the most expensive email in history! In your opinion, who’s at greatest fault? The analyst for not reaching to his own bosses about the issue, or the manager for not reading the report?

    1. Hako9 says:

      >>A week and a half pass before the analyst asks for “thoughts” on the proposal.

      I mean, yeah…The analyst sat on his bum for this long. Who else is to blame? The guys that hired him/her.

  2. Kat says:

    I appreciate the overall conclusion here, but I did want to say that I’ve been involved in exchanges like this before. I never felt like I was being productive; I felt like I was being stonewalled. (Maybe that’s because I’ve read this blog nearly everyday for years) I can so vividly imagine what the Credit Suisse employee felt. In fact, I’ve got proposals in to my boss right now, that she hasn’t “had time to review”. Meanwhile, she sent an email marked ‘High Importance’ because the fridge in the employee break room had plastic bags in it. So, I feel for the risk analyst. When you can’t get someone to do their job, you can’t get the project done, no matter how much you want to.

    1. Geoff says:

      🙂

      This comment made my day.

      1. Kat says:

        Thank you! I’m glad 🙂

    2. Kris says:

      It sounds the same to me. It doesn’t feel productive, and it looks more like manager having too many things to do.

      Reminds me of Slack by Tom DeMarco.

  3. Sam says:

    *forehead slap*
    I honestly don’t understand this. I work in an email-heavy industry, but still: when something becomes suddenly important and urgent, I PICK UP THE PHONE. smh

    1. Patrick says:

      This!

  4. Emile Hatem says:

    The issue isn’t that email was mistaken for actual work.

    The risk analyst chose to keep the position open too long, trying to preserve the business relationship. He could have cut off the client, and he probably didn’t forget about the email. He was probably agonizing over whether to cut off the client. He kept the position open to preserve the relationships, took a calculated risk, and lost.

  5. Susan Jaques says:

    Long time reader, first time poster here.
    This is such a crystal clear, tangible example of the futility of relying on back-and-forth email correspondence while thinking work is being done. Thanks for headlining it.

  6. JR says:

    Being a lawyer attempting to preserve secrecy, I typically said next to nothing in email other than “we need to talk and I am coming to see you right now.” The less said in email; the better and the more important the matter. When distance is an issue, lawyers use only landline telephones and speak directly to preserve attorney/client privilege as well as secrecy. (Cellphone calls are able to be intercepted unless encrypted using a standard “black” phone.) Maybe if people in banking took information as seriously as lawyers do then they would use the phone as well.

    1. James says:

      Usually it’s the opposite in my experience. Email is a good litmus test–if you’re not willing to put your statement in an email (ie, put it in writing), it’s probably a bad idea. I use this all the time in the construction world. There are a lot of regulations that have significant gray area, and it’s sometimes useful to see whether the person is trying to get away with something vs genuinely things they’re doing the right thing. If they’re willing to talk about it on the phone but not in an email, they’re trying to get away with something.

      I can imagine banking is the same. There are a lot of games you can play with accounting, and it’s useful to know whether you believe you’re stepping over the line or not by seeing if you’re willing to put something in writing.

      Part of it is that in my line of work you don’t get privacy. My line is “We’re an open book”–any regulator with authority over our work, any client rep, any subcontractor rep has the right to come onto my site at any time and inspect my work. Legally I am to cooperate to the maximum extent possible. Creates a slightly different mentality to what you expressed.

  7. Markos Giannopoulos says:

    My 2c: This isn’t about email being a bad medium of communication. This is about a manager trying to ignore the problem and an analyst not judging the situation correctly in order to push for a resolution or escalate the issue before it got too problematic.

    1. Marcelo Osorio Wallau says:

      Exactly. And people not wanting to make a decision. This happens so frequently on an academic setting as well

    2. Ping says:

      I agree. This blog post spun this story in a way to promote Cal’s book.

      Reading the Bloomberg report, I get the impression that this was a political fight between the front and back offices of an investment bank.

      If 5.5 billion was on the line, you should bet the risk functions have escalated this to executive management before the fact. This email sideshow was likely analysts being told to buy time.

  8. I really appreciate this perspective on not losing clarity on what’s truly important in the midst of the busy.

    Excellent illustration!

  9. Sorting or forwarding emails is shallow work.
    When you something to be done: pick-up the phone or schedule a short meeting…

  10. Tim Wassink says:

    Lol, r/wallstreetbets is leaking Cal.

  11. Nicola Misani says:

    It made me think of this nice research on how not sending emails make recipients more productive: “Worker Skills and Organizational Spillovers: Evidence from Linked Training and Communications Data”, https://www.nber.org/conferences/organizational-economics-meeting-spring-2021

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