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have tallied up total combined losses of roughly $ 10 billion , questions have been raised about prime brokers offering cheap leverage to hedge fund clients . To make big trades , hedge funds typically borrow money from prime brokers , allowing them to leverage the cash they hold and increase their positions – potentially earning far greater returns if their bets come good but also , on occasion , losing more money than they hold in client funds . Nomura , for example , reportedly granted Archegos leverage four times more than a typical long / short equity fund .
Morgan Stanley and other prime brokers involved have started to review their relationships with clients , specifically family offices that have dealings with multiple prime brokerages . The CEO of Morgan Stanley stated that transparency and lack of disclosure related to certain clients is different from hedge fund institutions and scrutiny from regulators on the issue would be “ good for the whole and dwindling profits , Germany ’ s largest investment bank had emerged somewhat triumphant compared to rivals .
As agreed in 2019 , Deutsche Bank is in the process of transferring its prime brokerage and electronic equities business to BNP Paribas under a major deal aimed at restructuring the business . The transfer was still underway when Archegos collapsed , meaning the risk remained with Deutsche Bank . James von Moltke , chief financial officer at Deutsche Bank , said on the bank ’ s first quarter earnings call that the situation had strengthened the partnership with BNP Paribas as they worked through it collaboratively .
Another winner from the Archegos collapse was Wells Fargo , which confirmed it also had a prime brokerage relationship with the family office but had managed to unwind its exposure without suffering any losses .
While banks linked to the downfall of Archegos
" Frankly , the transparency and lack of disclosure relating to those institutions is just different from the hedge fund institutions ."
JAMES GORMAN , CEO , MORGAN STANLEY
industry ”.
The multi-billion-dollar fiasco may prove to be a huge wake-up call for the entire industry as the US securities watchdog has since opened a preliminary investigation into Bill Hwang - a convicted insider trader who is banned from trading in Hong Kong - and his leveraged trades that rattled Wall Street .
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