[ N E W S R E V I E W | A R C H E G O S C A P I T A L M A N A G E M E N T ]
In March , a drop in the share price of US media group Viacom CBS following a stock sale sparked chaos on Wall Street and one of the most dramatic collapses in the finance world . It ’ s an intense tale of winners and losers featuring several of the largest investment banks including Credit Suisse , Deutsche Bank , Goldman Sachs , Morgan Stanley , MUFG , Nomura , UBS and Wells Fargo that acted as prime brokers for an ill-fated client .
The client in question was Archegos Capital Management , a $ 10 billion family office founded by renowned New York investor Bill Hwang , which was ultimately the biggest loser . The investment firm faced off with its prime brokers in late March as they demanded collateral to cover the fund ’ s exposure on swaps it had purchased on Viacom CBS and other technology stocks . Archegos failed to meet the margin calls , prompting a massive $ 20 billion fire stock sale as the banks , or at least some of them , rushed to sell off the fund ’ s positions to make cash so that Archegos could pay what was owed .
The alarm bells began ringing publicly on Monday 29 March when investment banks Credit Suisse and Nomura both declared that the event had significantly impacted their prime brokerage businesses .
By the time the dust settled , Nomura tallied up a weighty 307 billion yen , or $ 2.87 billion ,
" The significant loss in our prime services business relating to the failure of [ Archegos ] is unacceptable ."
THOMAS GOTTSTEIN , CEO , CREDIT SUISSE
16 // TheTRADE // Summer 2021
The collapse of Archegos Capital Management
As the fallout of the collapse of Archegos Capital sent shockwaves across the global community , Hayley McDowell examines this tale of winners and losers as questions about the future of prime brokerage are brought to the fore .
loss from the event related to the winding down of positions and changes in market prices . Speaking to investors on Nomura ’ s first earnings call in 2021 shortly after , chief financial officer , Takumi Kitamura , said the Japanese bank had taken a “ disciplined approach to exit our positions , taking into account both market impact and minimising losses ”.
In Switzerland , Credit Suisse counted an eye watering $ 5.5 billion total loss following the Archegos default , the largest loss suffered within the prime brokers by far . The fallout forced Credit Suisse to raise $ 1.9 billion in capital from investors to counter its balance sheet after the Swiss bank was also left reeling from the insolvency of its supply chain funds partner Greensill Capital in November .
“ The significant loss in our prime services business relating to the failure of a US-based hedge fund is