Archegos Capital hedge fund default triggers $ 30bn stock sales on Friday

On Monday, banks Nomura and Credit Suisse warned of significant losses stemming from the default of hedge fund Archegos Capital. A number of stocks, including ViacomCBS, Discovery, Baidu and Tencent Music, saw their biggest declines in their history on Friday, amid high-volume sales of their shares by large off-exchange players.

Japan’s major investment bank Nomura and Swiss investment bank Credit Suisse said on Monday they are suffering significant losses after a US hedge fund, according to media reports, Archegos Capital Management, defaulted on margin calls last week. Nomura said the potential losses could be $ 2 billion.

According to insiders, at the end of last week, major banks: Morgan Stanley (MS), Goldman Sachs Group (GS), Credit Suisse and Deutsche Bank AG forced Archegos to sell, among others, large stakes in Chinese technology companies through unregistered deals.

Goldman Sachs added many of Archegos’ shares to its balance sheet late Friday night and then liquidated them through distribution to clients. Goldman told shareholders that any losses it incurs as a result of the closure of the Archegos deals are likely to be immaterial.

Shares of Goldman Sachs, Credit Suisse and Nomura tumbled ahead of Monday trading.

Most of these deals were done on an over-the-counter basis and according to anonymous data from the Wall Street Journal, the volume of these sales on Friday approached $ 30 billion.

This affected the shares:

  • US media companies ViacomCBS (VIAC) and Discovery (DISCA) – their shares fell 27.3% and 27.45% at the close of trading on Friday;

  • Chinese tech companies Baidu (BIDU) and Tencent Music (TME), Farfetch (FTHC), iQIYI (IQ), GSX Techedu (GSX) and others. GSX Techedu shares fell 41.56% at the close of trading on Friday.

The Archegos Capital hedge fund was run by Bill Hwan, who at the time was the creator of the successful hedge fund Tiger Management. In December 2012, Hwang went to settle more than $ 44 million in lawsuits after the fund was accused of illegally using inside information to trade shares in Chinese banks.

Market analysts suggested that such volatile stock trading last week is likely to make investors more cautious.

“These fund liquidation stories happen from time to time,” said Michael Antonelli, market strategist at Baird. “Some companies that traded in high volumes on Friday may have some short-term volatility as traders wonder if the sale is complete.”

“The chaos in stock prices caused by such a liquidation sometimes creates opportunities to acquire good companies at great prices,” said Jiang Shi Cortesi, fund manager at GAM Investment Management in Zurich. “Therefore, we will look at stocks that were negatively impacted by such liquidation to look for such opportunities.”

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