Credit Suisse and Nomurak warn of losses after $ 20 billion in fire sales
Credit Suisse and Nomurak have warned of huge losses after selling about $ 20 billion worth of Chinese and US shares as their client had to divest many of Archegos Capital Management’s assets.
Nomura could face a complete loss of profit in the second half of the year, and Credit Suisse warned that the sale could have a “very significant and material” impact in the first quarter.
Shares of Japan’s largest investment bank fell to 16 percent in Tokyo on Monday morning and wiped out more than $ 3.2 billion from market capitalization, Nomura warned of recent transactions with an unnamed client and a U.S. subsidiary at risk of “significant loss”.
The Japanese and Swiss banks provided the main brokerage services to Archegos, which was created by former hedge manager Bill Hwang, according to several people nearby. Prime brokers borrow money and securities to process hedge funds and businesses.
Credit Suisse said in a statement on Monday: “A significant US hedge fund prioritized margin calls made by Credit Suisse and several other banks last week. Once the fund failed to meet those margin commitments, Credit Suisse and several other banks would exit those positions. are in the process “.
“Although it is too early at this point to quantify the exact size of the loss caused by this outflow, it could be very significant and important for our first quarter results.”
Nomura said in a statement that it was evaluating the extent of the potential losses, and stated that the estimated claim against the customer was about $ 2 billion. The bank said that figure was based on market prices at the close of trading in the US on Friday and could rise if asset prices continue to fall.
Archegos was a private investment company behind it worth billions of dollars in stock sales which captivated Wall Street on Friday. The fund, which had high exposures to ViacomCBS and technology stocks in China, hit hard after shares of the U.S. media group fell last Tuesday and Wednesday. The declines hit the margins of one of Archegos ’main brokers, and other banks caused similar cash requests.
Hong Kong and Tokyo hedge funds said on Monday they were traders ready to sell more blocks opening stocks in the US on Monday could also force other stocks linked to Archegos and unlock strong positions, such as Teng Yue Partners. Teng Yue was not immediately available for comment.
Hideyasu Ban, an analyst at Jefferies, said the $ 2 billion loss estimate recorded in the March quarter would eliminate most of Nomura’s pre-tax profits in the second half of the year ended this week.
Other major brokers who have leveraged Archegos say the problems for Nomura and Credit Suisse are linked to slower downloads of market share blocks in the market, especially Goldman Sachs and Morgan Stanley.
A Wall Street bank executive in Hong Kong said: “It’s not clear why Nomura sat in their hands and got those big losses.”
Another banker living in Tokyo said the very high level of leverage deployed by Nomura to Archegos is “surprising”.
Archegos is the family office that manages Bill Hwang’s wealth, Julian Robertson’s former student of the state’s “Tiger cub” Tiger Management hedge fund. It had about $ 10 billion in assets last week, according to major brokers. Hwang of New York previously ran the Tiger Asia hedge fund, but returned money to investors in 2012 has accepted wire fraud About Chinese bank stocks.
An executive at a global hedge fund in Hong Kong said: “It’s amazing that a fund focused on China was using Nomura and a Japanese bank was giving so much leverage. It looks like what a long / short capital fund would normally get at least four times.”
Teng Yue Partners, which runs the Tao Li Tiger Club, is also linked to the sale of shares in US media groups and Chinese technology business GSX Techedu, according to Hong Kong’s leading brokers and traders.
Tokyo bankers described the event, which was familiar with the situation surrounding the large sale of Archegos assets, as a possible “Lehman moment” that would force multiple lenders to acknowledge that the leverage deployed to the fund posed an excessive risk.
Nomura and Credit Suisse offered brokerage services to Archegos, which was among at least five banks, along with Goldman Sachs, Morgan Stanley and UBS, according to people close to them.
Some banks banned him from negotiating with Hwang around the world after doing the same Settle with U.S. regulators In 2012 due to illegal trade charges and in 2014 it was banned from trading in Hong Kong.