Archegos Capital Management
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Archegos Capital Management was a limited partnership
family office A family office is a privately held company that handles investment management and wealth management for a wealthy family, generally one with at least $50-$100 million in investable assets, with the goal being to effectively grow and transfer ...
that managed the personal assets of Bill Hwang, at one time managing over $36 billion in assests. On April 27, 2022 Hwang was indicted and arrested on federal charges of fraud and racketeering. On March 26, 2021, Archegos defaulted on
margin call ''Margin Call'' is a 2011 American drama film written and directed by J. C. Chandor in his feature directorial debut. The principal story takes place over a 24-hour period at a large Wall Street investment bank during the initial stages of the ...
s from several global
investment banks Investment banking pertains to certain activities of a financial services company or a corporate division that consist in advisory-based financial transactions on behalf of individuals, corporations, and governments. Traditionally associated wit ...
, including Credit Suisse and
Nomura Holdings is a Japanese financial holding company and a principal member of the Nomura Group. It, along with its broker-dealer, banking and other financial services subsidiaries, provides investment, financing and related services to individual, institut ...
, as well as Goldman Sachs and
Morgan Stanley Morgan Stanley is an American multinational investment management and financial services company headquartered at 1585 Broadway in Midtown Manhattan, New York City. With offices in more than 41 countries and more than 75,000 employees, the fir ...
. The firm had large, concentrated positions in
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,
Baidu Baidu, Inc. ( ; , meaning "hundred times") is a Chinese multinational technology company specializing in Internet-related services and products and artificial intelligence (AI), headquartered in Beijing's Haidian District. It is one of the l ...
, Vipshop,
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, and other companies, and the firm's use of total return swaps had helped to hide its high exposure from lending banks. Its derivative contracts "exposed the firm to severe losses when the trades went bad." The ''
Wall Street Journal ''The Wall Street Journal'' is an American business-focused, international daily newspaper based in New York City, with international editions also available in Chinese and Japanese. The ''Journal'', along with its Asian editions, is published ...
'' reported that Hwang lost $8billion in 10 days, while
Bloomberg News Bloomberg News (originally Bloomberg Business News) is an international news agency headquartered in New York City and a division of Bloomberg L.P. Content produced by Bloomberg News is disseminated through Bloomberg Terminals, Bloomberg Tele ...
reported that Hwang lost $20billion in 2 days.


History

Formerly of Tiger Asia Management, Hwang created the Archegos
family office A family office is a privately held company that handles investment management and wealth management for a wealthy family, generally one with at least $50-$100 million in investable assets, with the goal being to effectively grow and transfer ...
in 2013, which had $10 billion under management as of 2020. Tiger Asia Management has previously pleaded guilty to insider trading of Chinese bank stocks in 2012 and paid a $44 million fine. In 2014, Hwang "was banned from trading in Hong Kong for four years." Archegos' holdings were primarily in the form of total return swaps, a financial instrument where the underlying securities (stocks) are held by banks. This meant that Archegos did not need to disclose its large holdings, while if it had transacted in regular stocks it would have had to. The fund was also heavily leveraged and did business with multiple banks which were likely unaware of Archegos' large positions held by other banks.


March 2021 losses

On March 26, 2021, banks offering
prime brokerage Prime brokerage is the generic name for a bundled package of services offered by investment banks, wealth management firms, and securities dealers to hedge funds which need the ability to borrow securities and cash in order to be able to invest ...
services to Archegos started to liquidate billions of dollars' worth of various stocks after it had failed to meet a margin call. The stocks were reportedly tied to the total return swaps held by Archegos. This sale was reported to be the cause of a 27% plunge in share price of
ViacomCBS Paramount Global (doing business as Paramount) is an American multinational mass media and entertainment conglomerate owned and operated by National Amusements (79.4%) and headquartered at One Astor Plaza in Midtown Manhattan, New York. It ...
and a similar fall in the price of Discovery, Inc. On March 29, the share price of Credit Suisse was down by 14%, while Nomura Holdings shares declined by 16%. A press release from Credit Suisse said that "the loss resulting from this exit... could be highly significant and material to our first quarter results." According to ''The'' ''Wall Street Journal'', Goldman Sachs and Morgan Stanley were able to limit their losses relating to Archegos by acting more quickly than Credit Suisse and Nomura Holdings. Other banks, such as
Deutsche Bank Deutsche Bank AG (), sometimes referred to simply as Deutsche, is a German multinational investment bank and financial services company headquartered in Frankfurt, Germany, and dual-listed on the Frankfurt Stock Exchange and the New York Sto ...
, were able to close their substantial positions quickly and avoid any losses. The fate of Archegos has been compared to the meltdown caused by
Long Term Capital Management Long-Term Capital Management L.P. (LTCM) was a highly-leveraged hedge fund. In 1998, it received a $3.6 billion bailout from a group of 14 banks, in a deal brokered and put together by the Federal Reserve Bank of New York. LTCM was founded in ...
. On March 30, Mitsubishi UFJ Financial (MUFG) securities arm declared a $300 million loss in its
EMEA EMEA is a shorthand designation meaning Europe, the Middle East and Africa. The acronym is used by institutions and governments, as well as in marketing and business when referring to this region: it is a shorthand way of referencing the two ...
operations linked to Archegos.
Baidu Baidu, Inc. ( ; , meaning "hundred times") is a Chinese multinational technology company specializing in Internet-related services and products and artificial intelligence (AI), headquartered in Beijing's Haidian District. It is one of the l ...
was added to the list of affected stocks. MUFG EMEA, whose losses in the Hwang affair totalled about $300 million, only posted a profit in 2019 of $84 million. Shares of Nomura fell again on the 30th, and the Securities and Exchange Commission stated it was conducting an investigation. The demise of the New York-based hedge fund dragged the
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Index down by 0.77% that day, triggering a worldwide sell-off in banking stocks. On April 5, 2021, the Chair of the US
Senate banking committee The United States Senate Committee on Banking, Housing, and Urban Affairs (formerly the Committee on Banking and Currency), also known as the Senate Banking Committee, has jurisdiction over matters related to banks and banking, price controls, ...
,
Sherrod Brown Sherrod Campbell Brown (; born November 9, 1952) is an American politician serving as the senior United States senator from Ohio, a seat which he has held since 2007. A member of the Democratic Party, he was the U.S. representative for Ohio's ...
, wrote to Crystal Lalime general counsel at Credit Suisse, as well as Nomura, Goldman Sachs and Morgan Stanley to inquire about "the implosion of Archegos Capital" and gave the lenders 14 days to reply. Credit Suisse was mentioned by the ''
Financial Times The ''Financial Times'' (''FT'') is a British daily newspaper printed in broadsheet and published digitally that focuses on business and economic current affairs. Based in London, England, the paper is owned by a Japanese holding company, Ni ...
'' as "allowing the family office (of Hwang) to make highly leveraged bets on US and Chinese stocks". The
Securities Exchange Commission The U.S. Securities and Exchange Commission (SEC) is an independent agency of the United States federal government, created in the aftermath of the Wall Street Crash of 1929. The primary purpose of the SEC is to enforce the law against market ...
and the Financial Conduct Authority also have requested information about the implosion from the lenders, as well as the
NGO A non-governmental organization (NGO) or non-governmental organisation (see spelling differences) is an organization that generally is formed independent from government. They are typically nonprofit entities, and many of them are active in h ...
Self-regulatory organization A self-regulatory organization (SRO) is an organization that exercises some degree of regulatory authority over an industry or profession. The regulatory authority could exist in place of government regulation, or applied in addition to governmen ...
Finra The Financial Industry Regulatory Authority (FINRA) is a private American corporation that acts as a self-regulatory organization (SRO) that regulates member brokerage firms and exchange markets. FINRA is the successor to the National Associat ...
. On April 6, 2021, Credit Suisse reported losses of $4.7 billion linked to its involvement with Archegos. The bank's chief risk and compliance officer, and head of the investment bank were reported to have departed as a result of the losses caused by Archegos and
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crises. Later, the bank announced that it would have to raise up to $2 billion in fresh capital to support its equity base. Reported losses increased to $5.5 billion in late April on a notional exposure of over $20 billion, or more than half of the bank's capital at the time. On April 16, 2021,
Morgan Stanley Morgan Stanley is an American multinational investment management and financial services company headquartered at 1585 Broadway in Midtown Manhattan, New York City. With offices in more than 41 countries and more than 75,000 employees, the fir ...
reported a loss of nearly $1 billion related to the Archegos collapse, $644 million by selling stocks it held related to Archegos' positions, and another $267 million trying to "derisk" them. Credit Suisse Group AG and Japan's Nomura Holdings Inc took the main hit, with losses of $5.5 billion and $2 billion, respectively. On April 27, 2021, UBS Group AG, Switzerland's biggest bank by assets, reported that it lost $774 million in connection with Archegos’ failure. Nomura, which initially reported the losses of around $2 billion last month, increased its total loss to $2.85 billion. On April 27, 2022, Hwang and former Archegos CFO, Patrick Halligan, were arrested and charged with racketeering conspiracy, securities fraud, and wire fraud in connection the company's 2021 collapse. In a 59-page indictment, Manhattan federal prosecutors alleged that Hwang and Hallligan schemed to manipulate stock prices. Lawyers for Hwang and Halligan stated that they were innocent of the charges in the indictment.


References

{{reflist Investment management companies of the United States Investment companies based in New York City Financial services companies established in 2013 Financial services companies disestablished in 2021 Holding companies established in 2013 Holding companies disestablished in 2021 American companies established in 2013 American companies disestablished in 2021 Tiger Management