Monday 29 March 2021
Archegos Capital causes tremors
US hedge fund failure hits bank balance sheets
Nomura, Credit Suisse and Deutsche Bank are giving up on the stock market. The reason is payment problems with a US hedge fund. While the German industry leader is likely to get away without any damage, the Swiss are preparing their investors for significant consequences.
A payment default by the US hedge fund Archegos Capital Management threatens to cost several banks dearly. The Swiss institute Credit Suisse warned on Monday of potentially high losses after a major hedge fund based in the US failed to meet additional funding requests last week. Deutsche Bank has since reduced its exposure to Archegos without any losses, as it announced in the evening. Even with the reduction of the remaining customer positions, she does not expect any losses.
The troublesome Archegos called the US Securities and Exchange Commission on the plan. The authority has been monitoring the situation since last week and is in communication with market participants, said a spokesman. The hedge fund did not initially comment.
The shares of Credit Suisse and the Japanese financial group Nomura, also affected, suffered heavy losses on Monday. The Deutsche Bank share could not completely escape the downward pull – although it had already leaked in the course of the day that the Frankfurt money house was obviously by far less heavily involved in Archegos than other major banks. Before Deutsche Bank issued its statement in the evening, the paper, as the weakest value in the Dax, went out of trading with a price loss of more than three percent. The Credit Suisse share closed the trading day in Zurich with a minus of almost 14 percent – making it the biggest loser in the Swiss benchmark SMI index.
Billions in loss at Credit Suisse expected
Most banks do not mention their defaulting customers by name in their communications. According to media information, they all refer to the Archegos Capital hedge fund. The largest Swiss bank UBS declined to comment on the subject entirely. According to insiders, there is a risk of billions in loss. According to internal estimates, the shortfall is likely to be at least a billion dollars, according to two sources. One of them said the loss was estimated to reach $ 4 billion. This upper limit had previously been mentioned by the “Financial Times”.
The Japanese financial group Nomura warned of a potentially significant loss to a US customer. The claim amounts to about two billion dollars. Nomura did not want to be more specific.
For Credit Suisse, the hedge fund threatens to become the second expensive default in the first quarter. The bank is already affected by the insolvency of the British-Australian financial conglomerate Greensill, in the course of which the Greensill Bank in Germany went bankrupt.
According to Credit Suisse, it is too early to quantify the loss from the problems with the US hedge fund. But it could be “very significant and essential” for the result of the first quarter. This applies regardless of the positive trends that the bank announced earlier this month. Credit Suisse would like to publish new information on this matter in due course.
Shares placed for $ 30 billion
On Friday, a sell-off of stocks in the US led to sharp falls in the price of a number of companies linked to Archegos, according to an insider. The papers of the media groups ViacomCBS and Discovery had each lost 27 percent of their value. The shares of the Chinese companies Baidu and Tencent Music, which are listed in the USA, fell by a third and almost 50 percent respectively over the course of the week.
According to information from informed sources, Deutsche Bank, Goldman Sachs and Morgan Stanley had thrown shares worth around 30 billion dollars on the market on behalf of Archegos. Investors regard systemic risks as unlikely at this point in time, but they were nervous about the extent of the liquidation of Archegos positions and possible further sales.
The company, led by Bill Hwang, emerged from the Tiger Asia hedge fund. The manager reached an agreement in 2012 with the US Securities and Exchange Commission to terminate investigations into insider trading in return for payment of $ 44 million. Archegos, known on the company’s website as a family office, is said to manage around ten billion dollars according to media reports. Hwang could not be reached for comment.
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