Archegos Fallout Climbs To Over $10 Billion

UBS announced early Tuesday morning that they lost $861 million due to Archegos’s massive blowup that hit various other banks’ prime brokerages. UBS reported a $774 million operating loss in the first quarter and an additional $87 million in the second quarter due to the blowup.

Archegos was a family office set up by a former “tiger cub” Bill Hwang. Hwang had to close up Tiger Asia after he settled with the SEC around a claim that him and his firm traded on MNPI and was forced to pay $44 million in fines. After that, he swiftly got back into the game by setting up a family office and bought up massive portfolios of seemingly random and odd companies such as Discovery, Viacom CBS, Vipshop, Tencent, Iqiyi, and GSX Techedu.

Various reports tag his notional holdings at $70-$80 billion with a net long total position of about $50 billion with only $15 billion in his family office. He was able to access this immense leverage due to him using a total return swap, a derivative that allows for as little as 20% of the notional to be put down as collateral and additional collateral to be added or removed daily due to the fluctuations in the underlying stock.

However, not only was he using swaps to gain leverage, but he also was using multiple prime brokerages to conduct these trades, which seemingly did not know that their competitors were also on the hook for the same equity positions. As a result, this has lead to a >$10 billion loss when the syndicate of prime brokerages asked Bill to put up more collateral due to fluctuations in his holdings.

The fallout has been swift and punishing for many prime brokerages if your name isn’t Goldman Sachs. On top of UBS’s $861 million loss, Credit Suisse, who’s dealing with the fallout of Greensill, previously announced that they are taking a $5.5 billion loss. Numora, a Japanese bank, announced that they raised their total loss from $2 billion to $2.85 billion, while another Japanese lender, Mitsubishi UFJ, pegged their losses at $300 million. Stateside, Morgan Stanley announced during their first-quarter results that they also took a $911 million loss due to the fallout, bringing the total to ~$10.5 billion.

Information for this briefing was found via Sedar and Refinitiv. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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