Goldman, Morgan Stanley limit losses with rapid sale of Archegos assets: WSJ

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Goldman, Morgan Stanley limit losses with rapid sale of Archegos assets: WSJ


Goldman Sachs Group Inc. and Morgan Stanley quickly moved large blocks of assets ahead of other big banks that traded with Archegos Capital Management, as the scale of the hedge fund’s losses became evident, according to people familiar with the transactions. . The strategy helped limit losses for U.S. companies during last week’s epic stock sell-off, they said.

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The losses of Archegos, led by former Tiger Asia director Bill Hwang, triggered the liquidation worth more than $ 30 billion. Banks continued to sell blocks of shares linked to Archegos on Monday, traders said.

“These are difficult times for the Archegos Capital Management family office, our partners and our employees. All plans are being discussed as Hwang and the team determine the best way forward, ”a company spokesperson said Monday evening.

CREDIT SUISSE WARNING OF A “VERY SIGNIFICANT” LOSS RELATED TO THE HEDGE FUND

Archegos has taken large and concentrated positions in companies and has held some positions in a mix of equities and swaps. Swaps are a common arrangement in which a trader has access to the returns generated by a portfolio of stocks or other assets in exchange for a commission.

The losses threatened to trickle down to the so-called blue-chip brokerage firms that handled the company’s transactions. The group of large Wall Street banks includes Goldman, Morgan, Credit Suisse Group AG, Nomura Holdings Inc., UBS Group AG and Deutsche Bank AG, people familiar with the company’s trading said.

Goldman Sachs Group Inc. and Morgan Stanley were quick to move large blocks of assets ahead of other big banks that traded with Archegos Capital Management as the scale of the hedge fund’s losses became evident, people say having knowledge o

On Thursday, Archegos called on the banks running its affairs to meet to work out a strategy for liquidating its holdings, a person familiar with the meeting said. The most important positions of the company turned strongly negative after a long period of ascent. A proposal emerged for all banks to delay big trades and keep talking over the weekend, but the call ended without any agreement.

On Friday morning, banks began to seize Archegos shares and Goldman Sachs began to sell in size. It quickly became clear that there would be little or no coordination between the banks.

Goldman and Morgan each ran to liquidate positions related to Archegos.

The discussion among the so-called blue chip brokers was extremely unusual and only happened a few times in recent memory, avoiding liquidations in some cases.

The decision to sell early helped protect Goldman from losses that hit other banks. Goldman expects results from the Archegos account to be “intangible” to its financial results for the first quarter ending this week, according to a person familiar with the matter.

Morgan Stanley sold 45 million shares of ViacomCBS Inc. on Sunday evening, marketing the blocks to a number of clients and responding to large investors who have called asking for additional blocks of shares for the bank to unload, said traders.

On Monday, banks sold blocks of shares in companies that also saw sales late last week. These included Discovery Inc., US-listed Chinese tutoring company GSX Techedu Inc., Chinese e-commerce platform Vipshop Holdings Ltd. and ViacomCBS, again.

Wells Fargo, which sold blocks of shares including ViacomCBS and GSX on Monday, also told clients on Monday that it had completed liquidating its exposure.

Credit Suisse and Nomura were not major sellers on Friday, traders said.

Credit Suisse said on Monday that it was too early to quantify the exact impact it was facing, but that it could be “very significant and important” for its results for the first quarter, which ends this month. Nomura said a US customer owed him around $ 2 billion. A person familiar with the matter said the trades in question were linked to Archegos.

Nomura shares fell 16%, a record drop in one day. Credit Suisse’s U.S.-listed shares fell 11.5%, the largest drop in a year. On Monday in New York, Goldman fell 0.5% and Morgan fell 2.6% on a day the Dow Industrials rose 98 points and the S&P 500 fell slightly.

The episode of Archegos is the latest in a long history of explosions to reveal that while Wall Street banks claim to be incomparable at collecting information relevant to investing, they often struggle to know what is happening next door. This shortfall is linked to the liquidation of Archegos, as it seems clear that the banks only realized too late that they held similar positions, with malignant implications for efforts to prevent markets in these stocks. to continue to fall.

“One can suspect that this person might be doing this trade with a bunch of other people,” said Jay Dweck, former head of trading and risk management at Goldman and Morgan Stanley and now consulting for banks and corporations. hedge funds. “But no one knows the aggregate. ”

Archegos’ big losses come as a board of major U.S. regulators, known as the Financial Stability Oversight Council, is already due to meet on Wednesday to discuss hedge fund activity during the crisis triggered by the pandemic. The meeting is the first of the Biden administration’s risk board, which has pledged to look at financial weaknesses revealed by the market turmoil triggered by a pandemic from March 2020. The board is made up of the heads of the department’s department. Treasury, Fed and other agencies. .

Dweck, the consultant, pointed to a case many on Wall Street are hearing echoes of this week: Long-Term Capital Management, a huge hedge fund that exploded in 1998. Companies haven’t learned the full extent of the market’s problems. hedge fund only when government officials summoned them to Long-Term’s offices to review its files, he said.

“The bottom line is you’re going to have stuff like that,” Dweck said.

Quentin Webb, Justin Baer, ​​and Peter Rudegeair contributed to this article.

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