{"id":110829,"date":"2021-03-30T03:36:14","date_gmt":"2021-03-30T03:36:14","guid":{"rendered":"https:\/\/fin2me.com\/?p=110829"},"modified":"2021-03-30T03:36:14","modified_gmt":"2021-03-30T03:36:14","slug":"global-banks-brace-for-losses-from-archegos-fallout","status":"publish","type":"post","link":"https:\/\/fin2me.com\/markets\/global-banks-brace-for-losses-from-archegos-fallout\/","title":{"rendered":"Global banks brace for losses from Archegos fallout"},"content":{"rendered":"

NEW YORK\/ZURICH\/TOKYO (Reuters) – Global banks may lose more than $6 billion from the downfall of Archegos Capital, sources familiar with trades involving the U.S. investment firm said on Monday, and regulators and investors fear the episode could reverberate more widely.<\/p>

FILE PHOTO: People are seen on Wall St. outside the New York Stock Exchange (NYSE) in New York City, U.S., March 19, 2021. REUTERS\/Brendan McDermid<\/figcaption>

Japan\u2019s Nomura and Credit Suisse of Switzerland warned of major losses from lending to Archegos for equity derivatives trades, triggering a worldwide sell-off in banking stocks.<\/p>\n

Morgan Stanley shares fell 2.6% and Goldman Sachs Group dropped 1.7%. Nomura shares closed down 16.3%, a record one-day drop, while Credit Suisse shares tumbled 14%, their biggest fall in a year. Deutsche Bank dropped 5% and UBS was off 3.8%.<\/p>\n

Losses at Archegos Capital Management, a family office run by former Tiger Asia manager Bill Hwang, sparked a fire sale of stocks including ViacomCBS and Discovery on Friday, a source familiar with the matter said.<\/p>\n

\u201cThis is a challenging time for the family office of Archegos Capital Management, our partners and employees,\u201d company spokesperson Karen Kessler said in a statement. \u201cAll plans are being discussed as Mr. Hwang and the team determine the best path forward.\u201d<\/p>\n

Archegos was unable to meet banks\u2019 calls for more collateral to secure equity swap trades they had partly financed. After those positions fell sharply in value, lenders sold big blocks of securities to recoup what they were owed, the sources said.<\/p>\n

\u201cWhen you have people making certain bets based on what has outperformed in the past and the tide turns they get burned. The question is how much leverage they used,\u201d said Richard Bernstein, chief executive of Richard Bernstein Advisors.<\/p>\n

The problems started last week when a disappointing stock sale by media giant ViacomCBS triggered devastating bank margin calls for Archegos, three sources familiar with the matter said on Monday.<\/p>\n

Shares in ViacomCBS fell 23% last Wednesday after the media company sold shares at a price which diluted its value. While stocks typically decline after share sales, ViacomCBS was also hurt by analyst downgrades concerned its stock had become over-valued.<\/p>\n

Related Coverage<\/p>\n<\/p>\n

See more stories<\/svg><\/p>\n

ViacomCBS\u2019s shares extended their declines on Thursday to be down 30% from the previous Monday\u2019s close, setting off alarm bells at Archegos\u2019 prime brokers and prompting them to offload stock in all of Archegos\u2019 investments.<\/p>\n

Goldman and Morgan Stanley were quick to offload shares on Friday, averting a material financial impact, sources familiar with the trades said.<\/p>\n

Deutsche Bank said it had significantly de-risked its Archegos exposure without incurring any losses and was managing down its \u201cimmaterial remaining client positions,\u201d on which it did not expect to incur a loss.<\/p>\n

However, other banks faced more serious repercussions.<\/p>\n

Nomura, Japan\u2019s largest investment bank, warned of a possible $2 billion loss, while Credit Suisse said a default on margin calls by a U.S.-based fund could be \u201chighly significant and material\u201d to its first-quarter results. The banks did not identify the fund.<\/p>\n

Credit Suisse\u2019s losses were likely to be at least $1 billion, two sources said. The losses could reach $4 billion, a figure, one source said. Credit Suisse declined to comment on loss estimates.<\/p>\n

REGULATORS WATCHING CLOSELY<\/h2>\n

Investors questioned if the full impact of Archegos\u2019 problem had been realized.<\/p>

Slideshow ( 2 images )<\/span><\/figcaption>

Market observers noted that only in February, hedge funds took major losses on short positions during the run-up in GameStop Corp stock. Hedge fund de-leveraging also contributed toward turmoil in the U.S. Treasuries market in March 2020.<\/p>\n

In the case of Archegos, the opaque and complex nature of its derivative trades, lightly regulated structure as a family office and high leverage – fueled by historically low interest rates – prompted concern about potential systemic risk.<\/p>\n

Regulators in the United States, UK, Switzerland and Japan said they were closely monitoring developments.<\/p>\n

Archegos bought derivatives known as total return swaps, which allow investors to bet on stock price moves without owning the underlying securities, according to one source familiar with the trades. The fund posts collateral against the securities rather than buying them outright with cash.<\/p>\n

Archegos\u2019 positions were highly leveraged. The firm had assets of around $10 billion but held positions worth more than $50 billion, according to the source who declined to be identified.<\/p>\n

Thomas Hayes, chairman of Great Hill Capital LLC in New York, said Hwang was known to run \u201ca very concentrated, highly leveraged book.\u201d<\/p>\n

The underlying shares were held by Archegos\u2019 prime brokers, which lent it money and structured and processed its trades. They included Goldman Sachs, Morgan Stanley, Deutsche Bank, Credit Suisse and Nomura.<\/p>\n

Unwinding the positions led banks to sell large blocks of stock. Shares of ViacomCBS and Discovery each tumbled around 27% on Friday, while U.S.-listed shares of China-based Baidu and Tencent Music plunged as much as 33.5% and 48.5% last week.<\/p>\n

Other stocks caught up in Archegos-related liquidations included Baidu Inc, Tencent Music Entertainment Group, Vipshop Holdings Ltd, Farfetch Ltd, iQIYI Inc and GSX Techedu Inc.<\/p>\n

Hwang, who ran Tiger Asia from 2001 to 2012, renamed the hedge fund Archegos Capital and converted it to a family office, according to a page capture of the fund\u2019s website. Family offices act as private wealth managers and have lower disclosure requirements than other investment companies.<\/p>\n

Hedge fund managers said they wondered why Hwang, whom several described as a \u201csmart guy,\u201d had made such big bets on ViacomCBS and Discovery, given the large wagers against the companies. The pair are not seen as high-growth plays, in contrast to other media stocks that have outperformed during the COVID-19 pandemic, the sources said.<\/p>\n

Hwang and his firm in 2012 paid $44 million to settle Securities and Exchange Commission insider trading charges.<\/p>\n

Source: Read Full Article<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

NEW YORK\/ZURICH\/TOKYO (Reuters) – Global banks may lose more than $6 billion from the downfall of Archegos Capital, sources familiar with trades involving the U.S. […]<\/p>\n","protected":false},"author":3,"featured_media":110828,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"yoast_head":"\nGlobal banks brace for losses from Archegos fallout - Fin2me<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/fin2me.com\/markets\/global-banks-brace-for-losses-from-archegos-fallout\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Global banks brace for losses from Archegos fallout - Fin2me\" \/>\n<meta property=\"og:description\" content=\"NEW YORK\/ZURICH\/TOKYO (Reuters) – Global banks may lose more than $6 billion from the downfall of Archegos Capital, sources familiar with trades involving the U.S. [...]\" \/>\n<meta property=\"og:url\" content=\"https:\/\/fin2me.com\/markets\/global-banks-brace-for-losses-from-archegos-fallout\/\" \/>\n<meta property=\"og:site_name\" content=\"Fin2me\" \/>\n<meta property=\"article:published_time\" content=\"2021-03-30T03:36:14+00:00\" \/>\n<meta name=\"author\" content=\"Mark\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:image\" content=\"https:\/\/fin2me.com\/wp-content\/uploads\/2021\/03\/cnewsfotor902.jpg\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Mark\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"5 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\/\/fin2me.com\/markets\/global-banks-brace-for-losses-from-archegos-fallout\/\",\"url\":\"https:\/\/fin2me.com\/markets\/global-banks-brace-for-losses-from-archegos-fallout\/\",\"name\":\"Global banks brace for losses from Archegos fallout - 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