After the Archegos blowout, U.S. regulators interviewed Wall Street banks and the White House expressed concern about it.
On March 30, the U.S. Securities and Exchange Commission (SEC) and the U.S. Financial Industry Regulatory Authority (FINRA) spoke with Wall Street banks, Bloomberg reported.
The fallout has spread to the highest corridors of U.S. power in Washington, and White House press secretary Jen Psaki told Bloomberg that the Biden administration is watching the situation.
The SEC called a meeting with banks to discuss facilitating the sale of more than $20 billion in Archegos-related stock, people familiar with the matter said. The conference call also involved FINRA, with regulators asking the economists about the impact of the brokerage business on their businesses, potential credit risks and other threats, a person familiar with the matter said.
“We have been monitoring the situation and communicating with market participants since last week,” an SEC spokesman said in an e-mailed statement.
A FINRA spokesman declined to comment.
On Friday (March 26), U.S. media reported that Archegos Capital, a highly leveraged fund managed by hedge fund manager Bill Hwang, blew up its long positions in stocks including Viacom (VIAC), DISCA, Followers, Tencent Music, Baidu Group and Misty Core Technology (RLX.N). The fund’s holdings were sold last week for a total of $19 billion, resulting in the evaporation of $33 billion, or about 215.9 billion yuan, in market value due to the presence of high leverage.
Among them, Goldman Sachs sold $10.5 billion, while Morgan Stanley executed a sell-off of more than $8 billion.
On March 29, Nomura Holdings, Japan’s largest securities firm, said one of its U.S. subsidiaries may have suffered a “significant” loss due to a transaction with a U.S. client. Based on market prices as of March 26, the subsidiary’s claim against the client is estimated at about $2 billion.
According to the Financial Times, two people close to Credit Suisse said the estimated loss to Credit Suisse from the Archegos blowout was between $3 billion and $4 billion.
Credit Suisse noted that a U.S.-based fund defaulted on a margin call, which will have a “significant and material” impact on its first-quarter results. Credit Suisse said a fund to Credit Suisse and a number of bankers “margin default,” meaning they are currently exiting these positions.
Bloomberg also reported, citing people familiar with the matter, that Bill Hwang’s Archegos Capital’s largest counterparty had discussed last week how to limit the market impact of his failed bets on stocks such as ViacomCBS, and how to orderly resolve problematic transactions, but the effort failed.
The meeting saw Goldman Sachs, Morgan Stanley, Credit Suisse and other investment banks allow Archegos to take on billions of dollars of exposure to volatile stocks through swap contracts, while Hwang struggled to cope with margin calls triggered by the plunge in Viacom’s stock price. Any hope of coordination was dashed by Friday morning, when Goldman Sachs began selling billions of dollars worth of Archegos-related shares to global investors, opening the floodgates.
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