Wall Street could face a major mistake as major brokers including Nomura and Credit Suisse rushed to unwind bets on various stocks as a common client defaulted on margin calls. Although the name of the client has not been revealed by the brokers, media claim it is Archegos Capital Management, a family office headed by Bill Hwang. The inflammatory sell-off of shares on Friday and Monday included nearly $ 20 billion worth of U.S. and Chinese companies listed in the United States, leaving many wondering if there will be any more unfolding in the coming sessions.
Archegos Capital Management, a family office headed by Bill Hwang, who had previously been fined by the US regulator SEC for insider trading, had built leverage positions in various stocks. Brokerages such as Nomura, Credit Suisse, Goldman Sachs and others lend cash as well as securities to clients such as hedge funds.
The family office had significant exposure to stocks such as ViacomCBS and Chinese tech companies, according to the UKTN. These positions were taken by borrowing cash or pledging securities with brokers. Things turned south for Archegos earlier last week as ViacomCBS shares started to slide, prompting margin calls from brokers.
This drop in the price of the shares of various participations and the demand for payment from the brokers led to the unwinding of the positions held by Archegos Capital, as Bill Hwang could not pay. The family office had $ 10 billion in assets until last week, according to various reports, which added that the leverage taken by Archegos Capital could be 4 to 5 times.
Inventories that fell
Nomura, in a press release, said yesterday that “an event has occurred which could subject one of its US subsidiaries to a material loss resulting from transactions with a US customer.” The investment bank said it is assessing the extent of the losses. “The estimated amount of the claim against the customer is approximately $ 2 billion based on market prices as of March 26,” he said. Credit Suisse, for its part, did not pin a number on the loss it could suffer from the transactions, but classified them as “very important and important.”
Nomura shares fell 16% in Tokyo while those of Credit Suisse fell 13.8%. This is one of the steepest declines seen by both banks after the March 2020 liquidation.
Shares of ViacomCBS were much more affected, down 25% intraday with shares of Discovery. In addition, Chinese companies listed in the United States, such as Baidu Inc. and Tencent Music, were also among those of Archegos’ bets that were settled, resulting in intraday declines of 33-40%. Investors are now struggling to know the positions taken by Archegos Capital Management, which remain unknown due to its family office structure which does not require it to disclose its holdings.
Other big banks have fared better than Nomura and Credit Suisse. FT reported that Goldman Sachs and Morgan Stanley were also among the brokers who offloaded Achregos’ position, but were quicker to do so. Goldman Sachs had liquidated $ 10.5 billion worth of shares in bulk trades on Friday. UBS and Deutsche Bank would also have some exposure, but not significant. Most of these bank stocks fell in the last trading session.