[ad_1]
Bill Hwang’s largest Archegos Capital counterparties last week discussed ways to limit the market fallout from their collapsed bets on stocks, including ViacomCBS, according to four people briefed on the talks, but the effort failed and paved the way for days of trading. chaotic.
Before the problems at the family office erupted into public view at the end of the week, representatives from their business partners Goldman Sachs, Morgan Stanley, Credit Suisse, UBS and Nomura met with Archegos to discuss an orderly liquidation of the operations. with problems. .
Each of the banks had allowed Archegos to take on billions of dollars of volatile equity exposure through swap contracts, and Hwang was struggling to deal with margin calls triggered by a drop in ViacomCBS shares. An orderly liquidation would minimize the impact of the market and the impact on their own balance sheets as they worked to sell shares in companies that Archegos had accumulated through derivatives.
It’s unclear if an understanding was reached, but multiple sources said it quickly became clear that some banks had started selling to contain their own losses. People familiar with the trade said Credit Suisse and Morgan Stanley appeared to have dumped small batches of stocks on the market after the meeting.
“It was like a chicken game,” said one person.
By Friday morning, any hope of coordination was extinguished and the floodgates opened as Goldman began tossing global investors on billions of dollars in Archegos-linked stocks. Morgan Stanley joined hours later, and the two sold roughly $ 19 billion in large block deals that day alone, according to the people.
For major brokers that hadn’t moved fast enough, including Credit Suisse and Nomura, the result has been painful. The Japanese lender warned that its losses could reach $ 2 billion. The Swiss bank could face a loss of between $ 3 billion and $ 4 billion, the FT reported.
“The reality is that in a clearance sale, if you are not the first out, you will burn yourself out,” said one banker involved. “There is no honor among the banks, [it’s a] question of who blinks first. “
A source familiar with the process said there were attempts to meet again over the weekend, after Friday’s share sales drove the value of Archegos-linked shares drastically, but the idea of stopping the sales was not pursued.
Goldman and Morgan Stanley “were unwilling to play ball,” said a source informed of the interactions. “The idea was to perform in concert over the weekend so that we would not get to where we are now on Monday, but some of the paralyzed terms presented were not acceptable.”
The trading of Archegos Capital and its main brokers has had a knock-on effect on Wall Street, raising thorny questions about how much leverage banks offered the family office and how a secret investor came to accumulate such large positions under the radar.
Money managers have also wondered how much more there is to relax and if their own trading portfolios could be affected.
“Goldman will have analyzed the situation and. . . made the decision that the first cut is the cheapest. You go first, in these situations, you may not do better, but you definitely do better than the guys who are second and third, ”said a Tokyo banker.
A person familiar with the matter said the financial impact on Goldman from the trade fight would be “irrelevant.”
Morgan Stanley has found itself at the center of the storm, as in addition to being a prime Archegos broker, it has also provided investment banking services to ViacomCBS. Last week, he helped the media group raise nearly $ 3 billion in new equity and convertible debt to fund its fledgling broadcast business, a significant dilution of existing shareholders that caused the initial drop in ViacomCBS shares.
Over the weekend, Morgan Stanley dumped another $ 2 billion of ViacomCBS stock it had as a result of derivatives deals like Archegos’, traders said.
Other top brokers are also looking to clean their books. Wells Fargo offered 18 million ViacomCBS shares worth up to $ 846 million on Monday morning, people briefed on the matter said.
Additional information from Owen Walker in London
