Meme stock traders on Reddit and elsewhere love to hate Ken Griffin, CEO of Citadel LLC. The hedge fund and market maker manages over $34 billion and handles more US stock trades than anyone else. Many suspect it had a hand in Robinhood limiting buying in GameStop shares, which angered traders.
Its tentacles are everywhere. Citadel is so big, well-known, and rich it almost seems invincible.
But what’s less well known is that Citadel nearly went bankrupt during the financial crisis of 2008:
…in July 2008, Citadel endured the first of six straight money-losing months. Following his old script, Mr. Griffin raced to buy beaten-down assets such as convertible bonds, long his specialty, only to see them take a further beating.
Griffin’s hedge fund lost 55% of its value, and rumors swirled that the fund was about to go bankrupt. That was a very real possibility: 20% of all hedge funds shut down in 2008-09.
Citadel stopped investors from withdrawing money to stanch the bleeding. It also benefited from a helping hand from regulators, perhaps showing its political influence. From The Wall Street Journal:
In particular, regulators pressed Wall Street firms including Deutsche Bank AG not to make drastic changes in their dealings with Citadel, according to these people.
I suspect that if banks had been left to their own devices, Citadel would’ve imploded under an avalanche of margin calls and severed credit lines. When you’re down 50%, much less 55, people assume you can go down all the way. And they want to cut their losses.
With this governmental helping hand, Citadel managed to survive and today is thriving. But I find this history lesson instructive: the mighty can fall, fast.
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