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How Archegos’ $20 billion move to flee certain names led to banks’ share prices tumbling


Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., January 31, 2018.

Brendan McDermid | Reuters

The woes that arose from Archegos Capital Management at the end of last week bled into Monday as a slew of big banks saw their share prices decline.

Here’s how the $20 billion blowup unfolded.

U.S. media stocks ViacomCBS and Discovery experienced severe selling pressure on Friday, with each losing more than 27%.

A few Chinese internet ADRs including BaiduTencent and Vipshop also suffered sell-offs of a similar magnitude last week.

ADRs are American depositary receipts, essentially a certificate that represents a share of a foreign stock and is traded on American stock exchanges.

The culprit for the massive selling was a forced liquidation of positions held by the multibillion-dollar family office Archegos, CNBC reported.

Archegos, founded by former Tiger Management equity analyst Bill Hwang, had built massive positions in these stocks through swaps, a type of derivative that investors trade over the counter or among themselves without having to disclose the holdings publicly.

These swaps usually involve higher-than-usual leverage.

These large, leveraged bets came under pressure after ViacomCBS’ $3 billion stock offering through Morgan Stanley and JPMorgan earlier in the week fell apart, which triggered broad selling in the name.

The initial weakness in ViacomCBS triggered a chain of events where the prime brokers rushed to exit the positions on Archegos’ behalf and resulted in a massive margin call. The hedge fund was forced to inject more cash to cover the losses, amassing a forced liquidation of more than $20 billion.

The sell-off in these names continued on Monday with ViacomCBS down more than 8%. Discovery was off by more than 3%.

‘Significant losses’ 

A slew of big banks involved are warning of the fallout from the unwind of certain trades but are not specifically mentioning Archegos.

Nomura, headquartered in Tokyo, issued a trading update Monday citing a “significant loss” at one of its U.S. subsidiaries resulting from transactions with an unnamed U.S. client. Japan’s largest investment bank said it was evaluating the potential extent of the loss, estimated at $2 billion. Its shares fell nearly 14% on Monday.

Nomura did not immediately return a phone call from CNBC.

Credit Suisse said it and a number of other banks it didn’t mention were also affected and had begun exiting positions with the unnamed firm. The Zurich-based lender’s shares were down more than 15% following the announcement.

“While at this time it is premature to quantify the exact size of the loss resulting from this exit, it could be highly significant and material to our first quarter results, notwithstanding the positive trends announced in our trading statement earlier this month,” Credit Suisse said.

It added that it would provide a further update on the matter “in due course.”

Goldman Sachs, Morgan Stanley, and Deutsche Bank also facilitated Archegos’ liquidation of its holdings in many of the Chinese internet names through unregistered trades, CNBC reported.

Deutsche Bank said Monday that it significantly de-risked its exposure associated with Archegos without incurring any losses.

“We are managing down the immaterial remaining client positions, on which we do not expect to incur any loss,” the German lender said in a statement Monday.

Morgan Stanley also avoided significant losses from the Archegos trades, sources told CNBC’s Leslie Picker.

Goldman didn’t immediately reply to CNBC’s request for comments.

The Securities and Exchange Commission has been closely watching the impact from Archegos’ margin call default. “We have been monitoring the situation and communicating with market participants since last week,” an SEC spokesperson said Monday

— CNBC’s Elliott Smith, Bob Pisani and Scott Wapner contributed reporting.



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