Prime example

29 March 2021 By Liam Proud, Jennifer Hughes Follow @liamwardproud

Credit Suisse and Nomura could lose up to $6 bln on the default of Archegos Capital. Neither have been forthcoming yet about how a single client cost them so much. But such glaring control failures raise questions about what other risks are hidden in banks’ trading books.

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Nomura and Credit Suisse on March 29 each warned of potentially significant losses from what the Japanese bank described as a “U.S. client” and its Swiss rival termed “a significant U.S.-based hedge fund”. The firm in question is Archegos Capital Management.

Nomura said it was facing a roughly $2 billion hit based on stock-market prices on March 26. Credit Suisse did not give a figure, though the Financial Times reported the loss could be between $3 billion and $4 billion.

The disclosures came after sharp falls in the stock prices of numerous U.S. and Chinese companies that were linked to forced sales by Archegos in the days leading up to and including March 26, according to multiple media reports. Shares of ViacomCBS and Discovery fell as much as 27% on March 26. Since March 23, those of Baidu have dropped by about a third and Tencent Music’s tumbled by almost 49%.

The selloffs were caused by banks including Deutsche Bank, Goldman Sachs and Morgan Stanley offloading large blocks held by Archegos after a prime broker issued a margin call on the investment firm, according to reporting by Reuters, Bloomberg, the Financial Times and others. Archegos is a family office managing founder Bill Hwang’s money.

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