The biggest counterparts Bill Hwang’s Archegos Capital last week discussed ways to limit the fallout in the market from the collapse of its equity bets, including ViacomCBS, according to four people briefed on the talks, but the effort has faltered and paved the way for days of chaotic trading.
Before family office trouble breaks out public view At the end of the week, representatives of its business partners Goldman Sachs, Morgan Stanley, Credit Suisse, UBS and Nomura held a meeting with Archegos to discuss an orderly liquidation of the troubled transactions.
The banks had each enabled Archegos to gain billions of dollars in volatile equity exposure through swap contracts, and Hwang was struggling to cope with margin calls triggered by a fall in ViacomCBS shares. An orderly liquidation would minimize the impact on the market and the impact on their own balance sheets as they scrambled to sell the stakes in companies that Archegos had amassed through derivatives.
It is not known if a deal was reached, but several sources said it was quickly clear that some banks had started selling to stem their own losses. People familiar with trading said Credit Suisse and Morgan Stanley both appeared to have unloaded small lots of shares into the market after the meeting.
“It was like a chicken game,” said one person.
By Friday morning, any hope of coordination had been smothered and the floodgates were opened when Goldman began offering global investors billions of dollars in Archegos-related shares. Morgan Stanley joined the hours later, and the two sold around $ 19 billion in big block deals that day alone, according to people.
For prime brokers who hadn’t moved fast enough, notably Credit Suisse and Nomura, the result was painful. Nomura has warned his losses could reach $ 2 billion. Credit Suisse could suffer a loss of between $ 3 billion and $ 4 billion, the FT reported.
“The reality is in a fire sale, if you are not the first to come out, you are going to be burned,” said one banker involved. “There is no honor among banks, [it’s a] question of which flashes first.
A source close to the process said there were attempts to summon again this weekend, after Friday’s stock sales drastically depressed the value of Archegos-linked stocks, but the idea of ‘stopping sales was not continued.
Goldman and Morgan Stanley “weren’t ready to play ball,” a source briefed on the interactions said. “The idea was to act in concert over the weekend so that we didn’t get to where we are now on Monday, but some of the proposed suspension terms were not acceptable.”
The trading of Archegos Capital and its prime brokers reverberated on Wall Street, raising thorny questions about the leverage offered by banks to the family office and how a secret investor came to accumulate equally important positions under the radar.
The portfolio managers also questioned how much they had left to relax and whether their own trading books might be affected.
“Goldman will have looked at the situation and. . . made the decision that the first cut is the cheapest. You go first, in these situations you can’t come out the best, but you definitely do better than the guys who come second and third, ”said a Tokyo-based banker.
A person familiar with the matter said the financial impact on Goldman of the trade hype would be “intangible.”
Morgan Stanley found itself at the center of the storm, as in addition to being a prime broker for Archegos, it also provided investment banking services to ViacomCBS. Last week, he helped the media group raise nearly $ 3 billion in new shares and convertible debt to fund its nascent streaming business – a significant dilution of existing shareholders that triggered the initial decline in shares of ViacomCBS.
Over the weekend, Morgan Stanley sold an additional $ 2 billion of ViacomCBS shares it held as a result of derivative transactions such as those with Archegos, traders said.
Other top brokers are also looking to erase their books. Wells Fargo on Monday morning offered 18 million ViacomCBS shares worth up to $ 846 million, people briefed on the matter said.
Additional reporting by Owen Walker in London