ANTONIO’S SHIPS CAME HOME LATE

Antonio opens The Merchant of Venice by confessing that he does not know why he is so sad, and his friend Salarino offers a diagnosis. Your mind, he says, is tossing on the ocean, there where “your argosies with portly sail” overpeer the petty traffickers like rich burghers on the flood. Antonio will have none of it. His ventures, he replies, are not trusted to one ship, nor to one place, nor is his whole estate staked on the fortune of this present year. By the standards of the sixteenth century he is a diversified investor, and he says so in the first scene. I notice that he does not say where the sadness is invested.

Two scenes later he signs a bond that shows what diversification does not cover. His young friend Bassanio needs three thousand ducats to court a rich heiress at Belmont, and Antonio, who has no cash because his money is at sea, goes to the Rialto to borrow against his credit. The lender Shylock does the sum aloud. Antonio is a good man, he says, meaning that he is sufficient. “Yet his means are in supposition.” He lists what he has heard: an argosy bound for Tripolis, another for the Indies, a third at Mexico, a fourth for England, and other ventures scattered abroad. Ships, he adds, are but boards and sailors but men, and there are land-rats and water-rats, water-thieves and land-thieves. The loan is for three months, without interest, and if Antonio fails to pay on the day he forfeits a pound of flesh from his own body. Antonio signs cheerfully, since he expects his ships home a month before the bond falls due. Bassanio tells him not to seal it and offers to dwell in his necessity. Antonio reckons on a return of “thrice three times the value of this bond” and means to “say there is much kindness in the Jew.”

One month in hand is all the margin he has. No ships come.

By the third act a ship of rich lading is reported wrecked on the Goodwins, and Shylock, hearing the rumour, tells his friend Tubal to hire an officer a fortnight before the day. He will have, he says, “the heart of him, if he forfeit.” The creditor is arranging the default while it is still a rumour. Then Antonio writes to Bassanio that all his ships have miscarried, his creditors grow cruel, his estate is very low, and his bond to the Jew is forfeit. At the trial nobody asks about his ships. Antonio calls himself “a tainted wether of the flock, meetest for death.” The duke can offer only his sympathy (“I am sorry for thee”), which is of the wrong denomination. A solvent merchant stands in the dock because his fortune lies elsewhere on the wrong day, and the court reads the calendar.

Rescue comes from Portia, disguised as a young doctor of law, who asks Shylock to tarry a little and observes that the bond gives him a pound of flesh and not one jot of blood. “Is that the law?” asks Shylock. In the last act, back at Belmont, she hands Antonio a letter. It says that “three of your argosies are richly come to harbour suddenly.” She will not tell him “by what strange accident” the letter reached her, and he answers that his ships are “safely come to road.” Three of his argosies were sound after all, and merely out of reach on the one day when reaching them mattered.

Four centuries on, the question reappears as a clause in a loan: can the money be found when it is asked for? A margin call is the modern bond, in which the lender may demand more collateral when the collateral falls in value. Its logic is Shylock’s without the theatre. A bank lending against shares wants to be safe on the day the shares fall, and does not wait to see what happens afterwards. An investor can be right about a company for years, and a margin call is indifferent to the fact.

In late March 2021 the banks found out how much they had lent against one man’s conviction. Bill Hwang ran Archegos Capital Management, a New York family office that he had set up in 2013, which in law meant that it managed family money and was spared much of the disclosure that binds a hedge fund. Archegos grew to about 36 billion dollars and, through borrowing, to roughly 160 billion dollars of exposure to a handful of stocks, taken through swaps, under which a bank holds the shares and the client takes the gains and losses. Such contracts require no public disclosure, so the market never saw the positions, and each bank saw only its own slice of the same bet. Here was Antonio’s spread of ships seen from the wrong end, and nobody counted the fleet.

Trouble began when Morgan Stanley and JPMorgan arranged a share offering for ViacomCBS, which wanted three billion dollars, and the offering fell flat. The shares dropped, the banks asked for more collateral, and Archegos could not supply enough. Forced selling of more than 20 billion dollars followed. On Friday 26 March ViacomCBS and Discovery each fell by more than 27 per cent, and the Chinese internet stocks in the same book went the same way.

On Monday the story reached the public.

Nomura said that it expected a significant loss on a transaction with a client in the United States, put at about 2 billion dollars, and its shares fell by a record 16 per cent in Tokyo. Credit Suisse said that its own loss could be highly significant, and its shares fell by as much as 14 per cent. In the event Credit Suisse lost 5.5 billion dollars, and the banks together lost more than 10 billion. Goldman Sachs, which had already left most of its positions, was reported to expect only an immaterial loss. The banks that reached the exit first took the least harm. A lender with a margin clause looks at the position and leaves the theory to the borrower, and a lender who stops to examine the theory will find that the other lenders have already sold.

Afterwards Credit Suisse commissioned a review from the law firm Paul, Weiss and published it on 29 July 2021. It spoke of a fundamental failure of management and controls. In August 2020 the bank’s potential exposure to Archegos stood at about 530 million dollars against a limit of 20 million, and nobody acted, although the data behind the figure could already be six weeks out of date. Staff, the report suggested, were preoccupied with keeping the client, and two co-heads each assumed that the other was running the relevant desk, which is a comfortable thing to assume about a colleague. The review also spoke of a wilful reduction in margin.

Bill Hwang was convicted in July 2024 of fraud, market manipulation and other charges, and on 20 November 2024 Judge Alvin Hellerstein sentenced him to eighteen years in prison. Prosecutors argued that he had lied to the banks about his portfolio, and his lawyers told the court at sentencing that his net worth was at most 55.3 million dollars, a very small ship to set beside 160 billion dollars of exposure. The comparison with Antonio therefore has a limit, and the limit favours Antonio. Shylock knew roughly what the merchant owned and where it was, because the Rialto talked. The banks of 2021 had been told a story by their client, and the prosecutors say it was untrue.

The ships came home, three of them, richly laden, once the bond was overdue. The play arranged a lawyer in a borrowed gown and a letter that fell into the right hands, which is a good deal of luck to ask of a drama and a good deal more to ask of a prime broker.