2 BANKS IN TANKS
Stox dive after hedge-fund meltdown
A forced hedge-fund liquidation that started last week hit global investment banks Credit Suisse and Nomura on Monday after they warned of financial troubles as a result of the blowup.
Nomura shares fell a record 16 percent and Credit Suisse’s shares dropped 14 percent, its biggest fall since the pandemic struck last March.
Credit Suisse’s plunge came after it warned of a “highly significant and material” hit to its first quarter results tied to trouble at a “US-based hedge fund” that The Wall Street Journal has identified as Archegos Capital Management, led by Bill Hwang, a former protégé of hedge-fund titan Julian Robertson.
The hedge fund “defaulted on margin calls made last week by Credit Suisse and certain other banks,” the Zurich-based bank said Monday. “Following the failure of the fund to meet these margin commitments, Credit Suisse and a number of other banks are in the process of exiting these positions.”
Japan-based Nomura also warned of a financial hit tied to $2 billion it’s owed by a US client, which reports have identified as Hwang’s Archegos.
The warnings come as the Journal reports on a forced liquidation of Hwang’s hedge fund, which has triggered stock selling on a mass scale valued at $30 billion since last week.
On Friday, the hedge-fund implosion pulled down major US media companies ViacomCBS and Discovery, sending shares in both tumbling 27 percent, marking their biggest declines ever. Viacom slid almost another 7 percent Monday.
As Wall Street last week struggled to grasp what was happening, some analysts pointed to a wider market correction. But over the weekend, it emerged that the selling was the result of Goldman Sachs and Morgan Stanley unloading big block trades because Archegos had borrowed money for trades and wasn’t able to make good on its debts when the banks asked for more capital to cover losses, known as a margin call.
Morgan Stanley and Goldman Sachs did not comment, although Morgan Stanley has told investors it sold $15 billion worth of blocks in the last few days and has no more blocks to sell, according to CNBC.
Bloomberg reported that Goldman also has dramatically reduced its exposure to the blowup and has told clients that any resulting ding to its financials will be immaterial.
The Securities and Exchange Commission said Monday that it is monitoring the situation, and has been communicating with market participants since last week.
As a Robertson protégé, Hwang was a member of an elite group of hedge funders known as a “Tiger cub,” a reference to Robertson’s Tiger Management. He used that cred to open a multibilliondollar Asia-focused hedge fund, Tiger Asia Management, before shutting it down following a 2012 insider-trading plea tied to Chinese bank stocks.
Hwang then focused on running his own money out of Archegos, a family office. Investment shops without outside investors are usually allowed to take bigger risks because they are under less scrutiny by regulators.