Regulators around the world monitor collapse of US hedge fund

Financial regulators across the world are monitoring the collapse of the New York-based billionaire Bill Hwang’s personal hedge fund.

The sudden liquidation of Hwang’s Archegos Capital Management sparked a fire sale of more than $20bn assets that has left some of the world’s biggest investment banks nursing billions of dollars of losses.

The US Securities and Exchange Commission on Monday said it had been “monitoring the situation and communicating with market participants since last week” as panic spreads about the possible scale of the fallout from the forced liquidation of Hwang’s Archegos fund.

The investment banks Nomura and Credit Suisse on Monday warned investors that they are facing huge losses from their exposure to Archegos. Shares in Japan’s Nomura dropped 16% and Credit Suisse dropped 14% as analysts speculated on just how much money they could lose.

Nomura, which is Japan’s largest investment bank, warned it faced a possible $2bn loss. Credit Suisse said its losses would be “highly significant and material” but did not put a figure on it. The Financial Times said the Swiss bank could faces losses as high as $4bn. Credit Suisse declined to comment on any estimate.

In a statement, the Swiss bank said “a significant US-based hedge fund defaulted on margin calls made last week”, and that meant it and other banks were forced into “the process of exiting these positions”.

Japan’s chief cabinet secretary, Katsunobu Kato, said the Japanese government was carefully monitoring the situation at Nomura and that the Financial Services Agency would share information with the Bank of Japan.

The sudden collapse of Archegos was said to have been triggered by a sharp drop in the share price of the US media giant ViacomCBS last week. The fund had a big exposure to Viacom – via loans – and it was forced to unwind its position, which caused the price to drop further. Archegos was also forced sell stakes in other media companies and a host of Chinese tech companies.

Banks such as Nomura and Credit Suisse offer broker services to clients such as Archegos, lending them money to buy shares and other assets, while also processing their trades.

However, if the value of assets held in the client’s account falls significantly, usually because of a slump in the price of shares or other publicly traded securities, the broker can make a margin call, demanding that their client adds more cash or collateral to their accounts.

If clients fail to meet that demand, the broker will take steps to minimize their potential exposure to losses – including selling shares and other assets owned by the client.

 

Source: The Guardian

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