Thread by @jpr007

UNDERSTANDING THE CURRENT MARKET

Credit Suisse and Nomura warn of losses after $20bn stock fire sale

- a major Prime Brokerage Client defaults on their Margin Calls and they dump the shares that it was holding into the market to cover their exposure
on.ft.com/3waENaK

Archegos - read as "Arch Egos" - is a family office that manages the wealth of Bill Hwang, a “Tiger cub” alumnus of Julian Robertson’s legendary Tiger Management hedge fund

It had about $10bn of assets last week according to prime brokers

New York-based Hwang previously ran the Tiger Asia hedge fund, but he returned cash to investors in 2012 when he admitted to wire fraud relating to Chinese bank stocks

An executive at a global hedge fund in Hong Kong said :

“It is surprising that a China-oriented fund was using Nomura and being granted so much leverage by a Japanese bank. It looks to have been at least four times what a long/short equity fund would normally get"

Teng Yue Partners, run by fellow Tiger club Tao Li, has also been linked to the sell-off that hit shares in US media groups and Chinese technology business GSX Techedu last week, according to prime brokers and traders in Hong Kong

Bankers in Tokyo familiar with the circumstances surrounding the heavy sell-off of Archegos assets described the event as a possible “Lehman moment” that would force multiple lenders to recognise that leverage extended to the fund had created excessive risk

Nomura and Credit Suisse were among at least five banks that provided prime brokerage services to Archegos alongside Goldman Sachs, Morgan Stanley and UBS, according to people close to the matter

Some banks banned all trading globally with Hwang after he settled with US regulators over illegal trading charges in 2012 and was banned from trading in Hong Kong in 2014

Deutsche Bank was also exposed to the Archegos sell-off but its losses are expected to be a fraction of those suffered by other brokers, according to a person familiar with the bank

A private investment firm, Archegos was behind billions of dollars worth of share sales that captivated Wall Street on Friday

The fund had large exposures to ViacomCBS and several Chinese technology stocks and was hit hard after shares of the US media group began to tumble last Tuesday and Wednesday

The declines prompted a margin call from one of Archegos’s prime brokers, triggering similar demands for cash from other banks

Hedge funds in Hong Kong and Tokyo said that traders were braced for further block sell-offs in stocks associated with Archegos and other funds that could also be forced to unwind heavily leveraged positions, such as Teng Yue Partners, when trading opens in the US on Monday

Teng Yue was not immediately available for comment

Hideyasu Ban, an analyst at Jefferies, said that a $2bn loss estimate logged in the March quarter would wipe out most of Nomura’s pre-tax profits for the second half of the financial year ending this week

Other prime brokers that had provided leverage to Archegos said the problems at Nomura and Credit Suisse related to being slower in offloading share blocks into the market compared with their peers, notably Goldman Sachs and Morgan Stanley

An executive at a Wall Street bank in Hong Kong said :

“It is unclear why Nomura sat on their hands and racked up these large losses"

Another Tokyo-based banker said the extremely high level of leverage Nomura appeared to have extended to Archegos was “baffling”