Over the last few days, hedge fund Archegos Capital has been in the spotlight for being in the centre of a chain of events. According to Reuters, this fallout of the fund may incur a loss of over $6 billion to global banks. There is a fear that this failure will trigger a wider impact on financial markets stated a .
On Monday, Nomura and Credit Suisse have informed that they might face major losses after a client of their broking services defaulted on margin calls last week. With this, the stocks of both banks slumped.
This event triggered a sell-off in banking stocks. Morgan Stanley and Goldman Sachs Group shares dropped by 2.6 per cent and 1.7 per cent respectively. The impact was seen in stocks of Deutsche Bank and UBS as well.
What is this all about:
- A family office run by former Tiger Asia manager Bill Hwang, Archegos Capital Management was not the start point of this fallout but certainly in the middle of the series of events. This hedge fund is not a very popular fund but does have a large exposure.
- It all started last week, according to various reports, after media giant ViacomCBS went for stock sales which triggered a bank margin call for Archegos. The media company decided to encash the gains it made recently by selling its stock.
- In a margin call by a broker, a client needs to add funds to its account if the value drops below an agreed level. If the client, in this case Archegos, was unable to arrange for funds, the next step would be taken. It is: the broker will sell the client's shares and liquidate its holdings to cover the shortfall
- It is estimated that a fire sale of stocks of companies linked to the investment firm that took place on Friday, was worth $20 billion.
- The stocks of ViacomCBS and Discovery were among the companies hit by the liquidation move. ViacomCBS share was down by over 55 per cent over the last five days. In addition, some stocks of Chinese companies listed in US market saw a slump as well.
- The impact of this is huge on Nomura and Credit Suisse who took time to offload their share, whereas Goldman and Morgan Stanley offloaded shares promptly, leaving them with less impact.
-According to , the Securities and Exchange Commission is monitoring the situation and communicating with market participants.