Leopold Aschenbrenner (L) and Financial institution of America CEO Brian Moynihan.
Photograph: Josh Edelson (L) | Oscar Molina (R)
Financial institution of America CEO Brian Moynihan on Wednesday referred to as the current near-collapse of high-flying AI hedge fund Situational Consciousness a warning shot for monetary markets which might be being fueled by elevated valuations and borrowed cash.
Situational Consciousness, led by Leopold Aschenbrenner, was pressured to dump most of its public equities to Citadel final week in a hearth sale as its bets on synthetic intelligence soured. Financial institution of America was among the many agency’s prime brokers, executing trades and offering leverage to the fund, together with Goldman Sachs and JPMorgan Chase.
“These are all warning photographs,” Moynihan informed CNBC’s Andrew Ross Sorkin. “Valuations get out, leverage within the system will get there. You need to watch out.”
Moynihan’s feedback recommend Wall Road’s largest prime brokers are reexamining their publicity to extremely leveraged funding corporations because the AI commerce has fueled surging markets, whilst they proceed competing aggressively to finance hedge funds. Situational Consciousness rode a wave of AI optimism since its inception in 2024, ballooning to a peak of $45 billion in property earlier than final week’s reckoning.
“You all the time look and say, ‘OK, what occurred? Ought to we study from it? Ought to it change?'” Moynihan mentioned. “And so the tendency is to tighten the underwriting requirements, only a hair, to regulate — particularly with huge run-ups in shares.”
Nonetheless, Financial institution of America would’ve been “positive” even absent the Citadel deal, which offered capital for Situational Consciousness to repay its banks, Moynihan mentioned.
The Situational Consciousness meltdown is the newest case research within the perils of leverage. As expertise shares pulled again, the fund confronted mounting margin calls from its prime brokers. To satisfy these calls for, it was pressured to promote positions right into a falling market, accelerating losses and triggering a downward cycle that threatened the agency’s survival.
Situational Consciousness held concentrated positions in AI {hardware} suppliers, together with South Korean memory-chip maker SK Hynix. Phrase of the fund’s woes sparked a contemporary selloff in AI-related shares final week over worries that extra inventory might hit the market if the positions have been shortly unwound.
As soon as Citadel stepped on Thursday, these fears eased. Shares of a number of AI infrastructure corporations rebounded sharply, instantly boosting the worth of the positions Citadel had acquired.

