The biggest “melon” in the financial world this past weekend was the collapse of Archegos Capital, a hedge fund manager owned by Bill Hwang, a member of Wall Street’s “Tiger System” and a former hedge fund manager of Hong Kong stocks, due to a huge loss of a highly leveraged position. The company’s hedge fund manager Bill Hwang, a member of Wall Street’s “Tiger System” and a former member of the Hong Kong stock market, had a huge loss in his highly leveraged position and blew up his position, triggering a chain of “bloodshed”.
According to an analysis, Bill Hwang’s assets were around US$5 billion to US$10 billion and his total trading position may have exceeded US$50 billion. Due to the failure to make timely margin calls, the forced liquidation of his Family fund was forced to liquidate more than $20 billion of shares.
His failed bet was “the largest single-day loss for a single investor in human history,” and several of the world’s top banks were involved in the incident. This is because a large part of the Archegos deal was leveraged by the bank through swaps, meaning Archegos did not have to disclose its holdings in regulatory filings because the positions were already on the bank’s balance sheet.
Nomura’s Japanese shares plunged a record 16 percent on Monday after the company said it may have suffered “significant” losses from a deal with a U.S. client for which it has an estimated $2 billion in claims. Nomura U.S. shares fell more than 13%, hitting a nearly two-month low since Feb. 5 this year.
Credit Suisse’s European shares closed down more than 13.8% on Monday, the lowest in more than four months since Nov. 13 last year, and the biggest one-day drop since March last year. Credit Suisse U.S. shares fell more than 11 percent, the lowest since Nov. 9 last year. The company warned that the incident may have a “significant and material impact” on first-quarter results.
The analysis pointed out that Nomura’s deep fall was due to the focus of the funds that blew up on Friday in a row in Chinese and U.S. media stocks: Teng Yue and Archegos Capital’s accounts were opened in Nomura Securities. But Teng Yue, a former analyst at Bill Hwang’s firm and founder of Teng Yue, told clients, “I think there is a buying opportunity [in U.S. stocks] and did not participate in the liquidation of Hwang’s block of stocks.”
The Archegos Capital “blowout” continues to fester, with sources saying Morgan Stanley, Goldman Sachs, UBS and Deutsche Bank have also been involved.
For example, Morgan Stanley allegedly sold 45 million shares of U.S. media company ViacomCBS in a block trade on Sunday, March 28. Sources close to the matter also said Morgan Stanley informed investors that it had sold $15 billion of shares in block trades over the past few days and that it now has no more block trades to sell and “has not yet suffered significant losses as a result.
On Monday, Rocket Companies, the largest U.S. real estate mortgage brokerage, erased nearly 15% of its gains to fall more than 4%, Bloomberg said, adding that Morgan Stanley sold 20 million shares of Rocket in a block trade at $25.25 to $26.25, after the stock topped $27 at its intraday high. This is the first Time since last week that Rocket has appeared on the list of block trades initiated by Goldman Sachs and JPMorgan, among others.
A Deutsche Bank spokesman told the press that it had “significantly reduced” its exposure to Archegos Capital: “We are managing the remaining insignificant position of this client and do not expect to suffer any losses as a result.”
This echoes a Reuters report from Monday morning that Deutsche Bank’s exposure to Archegos Capital is much less than other peers, and in particular substantially less than Nomura Holdings. Deutsche Bank’s exposure to Archegos is concentrated in the prime brokerage business, which is expected to complete its transfer to BNP Paribas this year, although Deutsche Bank is still liable for any potential losses on holdings for which the transfer has not been completed.
Goldman Sachs, on the other hand, was “faster” than its peers with a keen sense of smell, dumping $10.5 billion in a block trade executed last Friday. According to reports, Goldman Sachs said that the losses it faced as a result of the Archegos position being closed out were likely to be small: the bank had unwound most of its Archegos-related positions, the loans it provided to the former were fully collateralized, and it was one of the first banks to begin reducing its exposure.
But sources said Goldman Sachs told shareholders and clients that the Archegos Capital stock trading fiasco was feared to have an “intangible impact” on Goldman Sachs’ earnings, and that it has now exited most of its exposure to the company.
Analysts say the unwinding of Archegos-related bets may not have come to an end, and there could be billions of dollars of positions to close out, judging from the size of Bill Hwang’s leverage. Credit Suisse and some other banks also said they are still in the process of exiting their positions.
By the close of European stocks on Monday, despite the bulk of the U.S. stock selling ripples through the European banking sector, German stock indexes still closed at record highs, except for the FTSE 100, the major European countries stock indexes generally closed higher. Bank stocks, Deutsche Bank fell more than 3.3%, once down 5% during the day, BNP Paribas fell more than 1.9%, Societe Generale fell more than 2.4%, HSBC Holdings in the United Kingdom fell about 1.1%, Italy’s UBS fell more than 1.3%, UBS fell 3.9%.
The U.S. bank stocks involved narrowed their losses. Goldman Sachs fell as deep as 2.9% during the day, narrowing to less than 1% at the end of the day, about to fall for two days and hit a one-month low since Feb. 26. Morgan Stanley fell 5% at one point, narrowing to 2.6% at the end of the day, will also fall for two days and hit a one-month low. Deutsche Bank U.S. shares fell more than 2.7%, also hit a one-month low since Feb. 22.
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