Recently, a Korean man who used a Japanese brokerage firm to trade Chinese stocks in the American stock market got into trouble, and that man is Bill Hwang, who set a record for the “biggest single-day loss in human history.
Last Friday (March 26), U.S. media reported that Archegos Capital, a highly leveraged fund managed by hedge fund manager Bill Hwang (a Korean), blew up its positions in stocks including Viacom (VIAC), DISCA, Heilongjiang, Tencent Music, Baidu, Misty Core Technology and others. The fund’s positions were sold off last week for a total of $19 billion, causing the market value of the stocks concerned to evaporate by $33 billion, or about 215.9 billion yuan, 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.
Bill Hwang said on social media on the 29th that if you owe the bank $80 billion to guarantee $15 billion in stock, then you’re both screwed.
On Monday (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 to be about $2 billion (about RMB 13 billion).
On the same day, the Daily Beast learned that Swiss financial regulator FINMA said Monday it had received notification from Credit Suisse of its involvement in an international hedge fund incident involving several banks. The agency said, “FINMA is aware of this international hedge fund case (involving several banks and international locations.) FINMA has been notified by the banks and is in contact with them.”
From Nomura to Credit Suisse, more and more facts show that this is not only a case of huge fund losses, but also implicates a number of investment banks and brokerage firms, and in extreme cases, it may further evolve into a “black hole of leverage that triggers financial crisis”.
Many netizens said, this thing will become the new Lehman crisis?
The Dow hit a record high, many of the explosion storm concept stocks plunged again
The Biden administration rarely mentions the stock market, but on Monday, March 29, local Time during the lunchtime session of U.S. stocks, White House press secretary Jen Psaki revealed that the Biden Administration is paying close attention to the stock market.
Jen Psaki said Monday that the Biden administration is closely watching the stock market decline on Monday. In addition, Psaki also reconfirmed that Biden will unveil a plan to rebuild the U.S. infrastructure on Wednesday this week. Stimulated by the news, the three major stock indexes short term upward, the Dow turned up in response.
Archegos Capital also drew the attention of the U.S. Securities and Exchange Commission (SEC), which said Monday that it was closely monitoring developments.
By the end of the day, the three major stock indexes were mixed, with the Dow up nearly 100 points to set a new intraday and closing record high, the S&P and Nasdaq still ended lower.
Listed in the U.S. big bank stocks fell, becoming one of the biggest downside drivers of the broader U.S. stock market on Monday, including Credit Suisse U.S. shares fell more than 11%, Deutsche Bank U.S. shares and Wells Fargo fell more than 3%, Morgan Stanley fell more than 2%, Citi fell nearly 2%, JPMorgan Chase fell more than 1%, Bank of America fell more than 0.9%, Goldman Sachs fell more than 0.5%.
Credit Suisse also plunged at the opening of the Swiss stock exchange, down 13.83% by the close.
Nomura U.S. shares fell more than 14%, and Tokyo-listed Nomura’s Japanese shares have plunged 16% on Monday.
The two North American media stocks ViacomCBS and Discovery, which fell sharply on Friday, closed down more than 6% and 1%, respectively, affected by Archegos’ blowout. Chinese stocks Vipshop fell more than 8%, Aiki fell more than 5%, closing down more than 41% on Friday with who learned fell more than 18%, down nearly 70% since this month, Baidu fell nearly 2%, Tencent Music rose more than 1%.
It is worth noting that, in addition to with who learns, other Education stocks also fell, Four Seasons Education fell more than 23%, Huafu Education fell 21.64%, Doodle Smart fell 17.82%, Good Future fell 6.78%, New Oriental fell more than 3%.
Foreign media: Credit Suisse faces a pre-loss of at least 19.7 billion
The Financial Times quoted two people close to Credit Suisse as saying that the (“Bill Hwang blowout”) caused an estimated loss of between $3 billion and $4 billion (about 19.7 billion yuan to 26.2 billion yuan) to Credit Suisse. Credit Suisse declined to comment. The Financial Times also cited a source familiar with the relationship between Credit Suisse and Archegos Capital Management, said the incident caused losses to Credit Suisse is limited to its New York-based bulk brokerage unit, and did not extend to the bank’s wealth management business.
Credit Suisse said it was too early to quantify the exact losses it faced, but said the “Bill Hwang blowout” could have a “very material impact” on first-quarter results, which end this month. Credit Suisse added that the bank would provide further updates on the matter “in due course.
In addition to the above-mentioned Nomura and Credit Suisse, the Financial Times also quoted sources familiar with the matter as saying that Deutsche Bank (hereinafter referred to as Deutsche Bank) has also been affected by the Archegos Capital collapse, but it is estimated that the losses suffered by Deutsche Bank will only be a small part of the losses suffered by other large investment banks. The person familiar with the matter said Deutsche Bank has hedged most of its exposure.
However, Bloomberg, citing sources, reported that Deutsche Bank had agreed to exit the bulk brokerage business in 2019, but so far its asset transfer is still in progress, which exposes the bank to any potential losses on its holdings, including the “Bill Hwang blowout”.
Some of the large Wall Street investment firms are bulk brokers for Archegos Capital, which is managed by Bill Hwang, and these investment firms handle Archegos Capital’s transactions and lend cash and securities to the fund. Late last week, Morgan Stanley, Goldman Sachs and Deutsche Bank quickly sold off a large number of shares in Archegos Capital’s positions as the market rumored that Archegos Capital had a blowout last Friday (March 26) EST. Many in the industry were puzzled as to why Nomura didn’t sell the shares in question on Friday.
Possibly related to the “Bill Hwang blowout” controversy
Morgan Stanley, Goldman Sachs, UBS, Deutsche Bank also involved
The Daily Beast noted that earlier this month, Credit Suisse announced a restructuring of its asset management business and the suspension of bonuses for senior managers. Credit Suisse had to consider compensating investors hit by the collapse of Greensill Capital, a major source of funding for Greensill, due to the collapse of the UK supply chain finance company.
Screenshot of Financial Times report
The Financial Times, citing sources familiar with the matter, said that in addition to the above-mentioned Nomura, Credit Suisse and Deutsche Bank, Goldman Sachs, Morgan Stanley and UBS (hereinafter referred to as UBS) were also providing bulk brokerage services to Archegos Capital. But Morgan Stanley, Deutsche Bank and UBS all declined to comment.
As of press time, it is unclear whether Morgan Stanley and UBS are affected by the “Bill Hwang blowout”. However, according to the Wall Street Journal, in recent days, by the “Bill Hwang blowout incident” triggered the liquidation of positions worth nearly $30 billion.
Trading data show that last Friday, by the “Bill Hwang explosion”, Goldman Sachs liquidated $10.5 billion worth of stocks in a single day, the market value of some of the leading stocks, including technology giants and media groups, evaporated $35 billion. Before the opening of U.S. stocks that day, Wall Street investment banks sold $6.6 billion worth of shares of Baidu, Tencent Music and Vipshop, followed by $3.9 billion of outflows from ViacomCBS, Discovery Channel, Farfetch Ltd and other stocks.
The Daily Beast noted that Bill Hwang actually reached a settlement with U.S. regulators over illegal trading charges as early as 2012 and was banned from trading in Hong Kong, China in 2014. Since then, a number of banks have banned all transactions with Bill Hwang on a global scale.
On the afternoon of March 28, Beijing time, the Daily Economic News sent an email request for comment to Bill Hwang himself, but had not received any kind of response from him as of writing.
Selling wave may continue
The next “Lehman crisis” is going to appear?
The question that is currently on the market’s mind is – how serious is this sell-off crisis? As more and more brokers issue emergency margin calls, the liquidation chain will extend to how far?
The Financial Times reported on the 28th that some traders believe that, judging by the shape of this sell-off, which culminated last Friday, it may now be largely over. At the same time, some traders believe that, judging from the size of Archegos Capital’s leverage, there may be billions of dollars of positions to be closed out.
Chen Da, executive director of Amlan Capital, said in an interview that Archegos Fund’s unwinding should not be over yet, but it is at the end of the process, according to the International Finance Daily. “The Archegos Fund’s position in Nomura was a total loss, as the blowout had caused Nomura to lose the amount of leverage it had lent to Archegos Fund. Goldman Sachs may have better risk control or higher closeout line requirements, may Archegos Fund close out the position and still have some positions remaining, either way, closeout behavior should continue, but the main position should have reached the end of the closeout”.
At present, the domino effect triggered by Bill Hwang’s position explosion, so that the market worries about whether the outbreak of a new “Lehman crisis”.
Chen Da believes that Lehman’s volume is much larger, and Lehman then had a large number of derivatives positions, risk exposure is far greater than this situation, there is no comparability, “so I do not think there will be too much follow-up chain reaction”.
In addition, according to First Financial, “Tiger Fund mainly likes to buy technology, media and consumer, so it should still be a local impact, and the ripple effect will not be too big.” Veteran global macro hedge fund manager Yuan Yuwei told reporters.
Senior U.S. stock trader Situ Jie also told reporters, “The impact should be limited, but it is not yet known how other hedge funds leverage, is not generally so large.”
Who is Bill Hwang?
In fact, Bill Hwang is not an unknown person, but an investment big shot who has been in the Hong Kong stock market since a decade ago.
Bill Hwang is pictured on the right. Photo credit: Vision China
According to China Fund News, Bill Hwang is a favorite of Julian Robertson, the founder of Tiger Fund, and used to be in charge of Tiger Asia Fund, the Asian division of Tiger Fund, which was established in 2001 to manage the fund’s equity investments in China, Japan and Korea. The insider trading case involving Tiger Asia Fund occurred in late 2008 and early 2009, when the fund sold H shares of Bank of China and China Construction Bank twice through insider trading and profited from them.
According to the details disclosed by the SFC, in the illegal transactions involving Bank of China H shares, Tiger Asia Fund was notified in advance and invited to participate in two placements of Bank of China H shares conducted by UBS and RBS on December 31, 2008 and January 13, 2009 respectively, and was informed of the details and price sensitive information of both placements. Tiger Asia Fund agreed at the time that it would not trade in the Bank of China H shares upon receipt of such information. However, prior to the placement of Bank of China by UBS on December 31, 2008, Tiger Asia Fund pre-sold 104 million Bank of China H shares, from which the market projected that it made a profit of HK$8.6 million.
On January 13, 2009, Tiger Asia Fund did the same thing and sold short 256 million shares before the placement of Bank of China H shares by Royal Bank of Scotland, but it was projected to make a loss of about HK$10 million as a result.
In 2010, these amounts were frozen by the court in full.
It was not until late 2013 that Tiger Asia admitted to the Hong Kong Court of First Instance that the institution’s purchases and sales in December 2008 and January 2009 did violate Hong Kong’s prohibited insider trading laws, as well as admitting to manipulating CCB’s share price in January 2009.
In 2013, Bill Hwang said in a letter to investors that he returned external funds to the fund’s investors and transformed Tiger Fund Asia into a Family investment fund and renamed it Archegos. In the letter, Bill Hwang confessed that the lengthy legal proceedings were the main factor in making the decision.
Hwang said in a 2018 YouTube video that his investments are “not all about money,” adding that “God certainly has a long-term vision “.
”We like to see in our little eyes what God is doing through investment and capitalism, and how. It can be done better.” He said.
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