Archegos Blowout Drills a $9 Billion Hole in the Market Cap of Nomura, Credit Suisse

Shares of Nomura and Credit Suisse plunged on Wednesday, losing a combined $9 billion in market value on the back of the market chaos following the collapse of Archegos Capital Management.

Credit Suisse shares dropped 4 percent, bringing the total loss over the week to a whopping 20 percent. The market cap declined by five billion Swiss francs to $27.12 billion. Analysts estimate that Credit Suisse's total losses may amount to $5 billion, according to Reuters.

At the same time, Nomura shares fell 2.9 more on Wednesday, causing a further dip in Its market capitalization. Nomura's viability ratings was placed on "negative watch" by rating agency Fitch, which cited potential material losses arising from the market chaos.


Why Nomura and Credit Suisse?

While Nomura and Credit Suisse were the hardest hit, Goldman Sachs and Morgan Stanley avoided huge impact as they offloaded shares as early as on Friday last week. Though Deutsche Bank had heavy exposure to Archegos, it said it had 'significantly de-risked its Archegos exposure'.

The Crisis

The crisis unfolded last week when Archegos engaged in the fire sale of about $20 billion of assets after it defaulted on a margin call by Credit Suisse and others. With the value of securities in the margin account of Archegos dropping substantially due to bets that failed, the fund was forced to sell assets in a fire sale, which then created a wave of panic that resembled the Lehman Brothers crisis in 2008. The fire sale saw assets worth about $20 billion, mainly US and Chinese stocks, being sold.

The Losses

The accurate account of the losses from the hedge fund blowout is not available as of now, but it is estimated that Credit Suisse is likely to have lost up to $4 billion while Nomura said it could face up to $2 billion loss.

Major investment banks like Deutsche Bank, UBS, Morgan Stanley, Goldman Sachs etc have been hit by the liquidation of Archegos but they avoided or limited the losses by cutting the exposure to Archegos assets in time.

"Goldman Sachs and Morgan Stanley got out quicker and got better prices. They know more about what's going on. Credit Suisse and Nomura don't have the same standing," Viola Risk Advisors analyst David Hendler told Reuters.

Nomura Holdings
Nomura Holdings Wikimedia Commons

Who is the Man Behind the Chaos?

Archegos was founded by former equity analyst Bill Hwang, who started his Wall Street career in the 1990s. After having worked with hedge fund manager Julian Robertson's Tiger Management, he then launched his own fund Tiger Asia Management in the early 2000s. In 2012 he renamed Tiger Asia as Archegos Capital and made it a family office. The fund went on to become of the largest investors in Asian financial markets.