Credit Suisse and Nomura Face Losses Due to Hedge Fund Liquidation

Published on 30 March 2021 at 10:57

Credit Suisse’s stock fell 13%, as Nomura fell a record 16% as large sell offs from a large U.S investor hit the banks, who will incur substantial losses related to the trades. Archegos Capital Management (the root of these bank’s issues) is a private hedge fund run by Bill Hwang. Archegos is a family investment vehicle.


Before Archegos, Bill Hwang set up the former Tiger Asia Management in 2001. The fund became on the of the biggest Asia-focused hedge-funds in New York, running more than $5 billion at its peak. In 2008, it was one, of a plethora of fund who suffered great losses relating to the high price of Volkswagen AG. In 2012, the fund had planned on delivering money back to investors. Later that same year, the firm pleaded guilty to a criminal fraud charge for insider trading.


Bill Hwang, recently has stirred up more drama, suspected of persistently purchasing shares in ViacomCBS Inc., Discovery Inc. and a handful of other companies, which sent share prices surging, even though the broader market was down.


Last week, Deutsche Bank AG, Morgan Stanley and Goldman Sachs Group Inc. unloaded large blocks of shares in those companies and others, part of the liquidation of positions at Archegos Capital Management. This liquidation is approaching $30 billion in value, according to the Wall Street Journal.


Morgan Stanley and Goldman Sachs had forced the fund to sell shares to cover potential losses after the price of Viacom started to fall. On Monday, it became clear that other banks were also caught up in Archegos’ sales when Credit Suisse and Noruma issued warnings to investors. 


According to Markets Insider, Credit Suisse said a “significant US-Based hedge fund” had failed to meet margins calls (a margin call is a demand from a lender that a borrower give up more cash to cover potential losses on its bets). Noruma further stated that it could take a $2 billion dollar hit.


The liquidations appear to have left Archegos, which managed an estimated $10 billion of personal wealth for the Hwang family, under extreme pressure following heavy losses. According to The Wall Street Journal, people close to the sales said that the bulk of the selling has been completed.


That said, there has been a large amount of uncertainty voiced, with many fearing the prospect of further large sales hitting financial markets. According to Markets Insider, Paul Donovan (the chief economist at UBS Wealth Management) believed that the sales were so far relatively small that the issue was unlikely to cause widespread damage. He elaborated further explaining, “some parts of the financial system may experience losses but it is unlikely that this will threaten the financial system’s stability.”


Bankers in Tokyo familiar with the implications and circumstances of the large sell offs described the event as a possible “Lehman moment” once again telling the tale of the dangers of leverage.

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