U.S. stocks on Friday, a large number of Chinese stocks and U.S. media stocks were sold off, some said it was due to the U.S. Family investment company Archegos failed to make up the margin and was cut off. The incident has triggered a chain effect, resulting in losses suffered by its creditor banks, Nomura and Credit Suisse on Monday coincidentally warned of major losses, reminiscent of the 2008 Lehman Brothers explosion triggered by the financial tsunami, but also make people worried about the wave of selling is not over, including Baidu Group (09888), including the Chinese stocks can hardly be said to bottom, the stock in the United States on Monday at the beginning of the low of $ 198.94, equivalent to about 193 Hong Kong dollars, about 5% lower than the Hong Kong closing price.
Japanese brokerage Nomura estimated that a U.S. customer owed about $2 billion (about HK$15.6 billion) and canceled the bank’s original plan to issue dollar-denominated bonds. The bank did not disclose the name of the U.S. customer, but it was Archegos. news dragged Nomura shares closed in Japan on Monday with a 16.3% plunge, the most wounded in the history of the market. Credit Suisse said that it is too early to quantify the losses, but may have a very significant and material impact on the first quarter results.
At the same Time, the market rumors that Goldman Sachs to shareholders and customers, the bank faced Archegos related losses are not large. It is reported that the loans provided by Goldman Sachs to Archegos are fully collateralized, and Goldman Sachs is one of the first banks to step in and has closed most of its related positions. It is also said that Morgan Stanley also had a part in assisting Archegos to liquidate its position on Friday, and Deutsche Bank and UBS were involved in the fund transaction. It is not clear whether the three banks are facing losses.
The chopping incident led to shares from Baidu to ViacomCBS and other shares, last Friday in the U.S. stock price shocks, some said that the big banks to deal with the value of the sale of goods close to 30 billion U.S. dollars. Although the overall financial market impact is limited, but the industry and sources say that the liquidation may not be over, Credit Suisse and other banks are still closing their positions, the big JP Morgan on Sunday is still “marketing” a large number of ViacomCBS shares. As for how much cargo to sell, although the outside world does not know much about the Archegos deal, but the market estimates that the total position may be as high as $50 billion.
It is reported that the Archegos holdings of companies with high leverage are both large and concentrated, most of the leverage is provided by the bank through swap transactions, meaning that the company does not have to report its position to regulators, because the position will be recorded on the bank’s balance sheet. Therefore, it is reminiscent of the 2008 Man Ray crisis.
This time, Archegos’ investment strategy has backfired in recent weeks because some of its longest positions have plummeted, such as Baidu in the U.S. in mid-March, when its share price fell more than 20 percent from its high, and Farfetch, which fell more than 15 percent from its high. The company had begun to reduce its holdings in ViacomCBS to cut losses, but at the same time, the latter’s shares were under further pressure.
By Thursday and Friday of last week, Goldman Sachs and Morgan assisted Archegos in selling some of its positions to provide more collateral. During the process, the banks executed block sales involving shares of Tencent Music, Baidu and Baidu’s Aiki, but the series of sales failed to raise enough assets for the fund to meet collateral requirements. So on Friday, many banks decided to cut their positions for Archegos, forfeiting the shares that had been used as collateral and selling them to cover potential losses. Some banks, worried about the potential losses, just wanted to get rid of the shares as soon as possible, rather than sell them gradually after negotiation. Some investors revealed that Goldman Sachs told some hedge funds on Friday that it was selling a large number of shares due to a fund being forced to deleverage, and would give priority to investors who could buy the most shares or buy several batches of shares belonging to different companies in one go.
The chopping off of positions led to a sharp drop in the share price of several shares on Friday, forcing Tencent Music to then announce a $1 billion share buyback on Monday to counteract selling pressure.
The main protagonists of the chopping off wave had rolled insider trading]
The family investment company Archegos is not known, but the founder, now in his 50s, Korean-born former hedge fund manager Bill Hwang has a lot of history, was a legend in the industry, the founder of the Tiger Fund Robertson’s favorite, is a member of the “old Tiger”, and now is involved in the second major scandal of his career.
In 1995, he won applause for being chosen by Robertson as the most beneficial outsider to the Tiger Fund. After the closure of the Tiger Fund, he set up his own firm, Tiger Asia Management, in 2001, with about $25 million in seed money from Robertson. While managing his own fund, he rarely disclosed his investments to investors, but they were still attracted by the bright returns, which showed an annual return of 16% during the fund’s operation.
However, in 2012, he pleaded guilty to insider trading on behalf of Tiger Asia. According to the U.S. Department of Justice, Tiger Asia made $16 million in illegal profits from 2008 to 2009 from trading on non-public information. He later turned Tiger Asia into a family investment office, renamed Archegos.
Goldman Sachs still refused to do business with Hwang at the end of 2018 because of his history of insider trading, and even attempts by senior equities department employees to open accounts for him were blocked by Goldman’s compliance department at the time. But Goldman Sachs later changed its mind and removed him from its blacklist, a shift that may have been due to the bank’s belief that the illegal trades involved were 10 years old and that Archegos was strong enough that the family investment office was larger than many hedge funds.
Goldman Sachs eventually became one of his top financing banks, allowing him to make many high-risk bets while laying the groundwork for last week’s wave of chopping and selling.
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