Losses at Global Banks from Archegos Blowout Tops $10 Billion

The total losses for global banks from the collapse of US hedge fund Archegos Capital climbed to $10 billion on Tuesday as UBS and Nomura revealed the extent of the financial hit they took.

Nomura, which had said it had lost around $2 billion last month, updated the records saying its losses from the exposure to the investment fund controlled by Bill Hwang mounted to $2.85 billion. Meanwhile, UBS reported a $774 million impact from the Archegos fiasco.

Nomura Holdings
Nomura Holdings Wikimedia Commons

Inherent Risk in Capital Markets

The hardest-hit investment bank, Credit Suisse, lost more than $5 billion after family-owned hedge fund Archegos imploded following a billion-dollar margin call. In the aftermath of the meltdown, Credit Suisse fired chief risk officer Lara Warner and investment banking chief Brian Chin. The bank also cut executive bonuses after suffering major losses and also ordered a probe into the massive loss.

Credit Suisse
Credit Suisse Wikimedia Commons

"(The Archegos loss) highlights the inherent risk in its capital markets activities and presents a setback against its (UBS's) otherwise risk-averse culture ... The bank's strong capital and liquidity remain key credit strengths safeguarding its financial profile and ratings," Moody's analyst Michael Rohr said in a note.

Earlier this month, Morgan Stanley said it lost $911 million due to the Archegos implosion. "The current quarter includes a loss of $644 million related to a credit event for a single prime brokerage client, and $267 million of subsequent trading losses through the end of the quarter related to the same event," Morgan Stanley said.

Collapse of Archegos


The crisis unfolded in late March 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.

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

What is Archegos?

The family-owned hedge fund 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.