Wall Street traders are looking for the source of a frenzy to sell distressed stocks that caused several Chinese tech companies and US media groups to fall sharply on Friday.
The mysterious stock sales, worth nearly $ 19 billion, sparked rumors that a hedge fund or family office had exploded and was preparing to liquidate its positions for billions of dollars.
The deals cost the companies involved an estimated $ 33 billion and captivated Wall Street in what is shaping up to be another volatile year, with big changes skewing established funds.
Goldman Sachs – one of the two banks handling the sales – began emailing investors about the deals long before the market opened, with $ 6.6 billion in shares in Baidu, Tencent Music and Vipshop on the block.
The Wall Street investment bank told its counterparties that the sales were prompted by “forced deleveraging,” a signal that a fund could have been hit by a margin call, according to people familiar with the matter. Goldman has increased the size of transactions on several occasions, they said.
Fund managers initially believed the sale was concentrated in U.S.-listed Chinese tech groups before a new measure introduced by the Securities and Exchange Commission that could force them to withdraw from U.S. stock exchanges.
But speculation became rampant on Wall Street as large blocks of stocks continued to arrive and the securities on offer widened beyond Chinese groups. Some fund managers felt sales of fires indicated that a large hedge fund or family office was in trouble.
Throughout the day, stock sellers from Goldman and rival Morgan Stanley pounded phones as they attempted to move billions of dollars in stocks. Shares of U.S. companies such as Discovery as well as online retailers Shopify and Farfetch were offered, wiping out billions of dollars in valuation.
The sales were executed in five blocks. After the first round of $ 6.6 billion, Goldman followed with an additional $ 2.3 billion in the afternoon and $ 1.7 billion of ViacomCBS shares. Morgan Stanley sold $ 4 billion worth of shares earlier today, followed by another $ 4 billion lot in the afternoon.
Morgan Stanley initially allowed investors to choose their individual stock allocations, but then moved on to an “all or nothing” offering where traders would buy an entire basket of securities, said two sources familiar with the process.
The largest shares came in shares of ViacomCBS, as more than $ 11 billion was wiped out of the owner’s valuation of MTV and Nickelodeon in a single trading session. As of Friday’s close, the value of the company’s shares had halved since the start of the week.
Although the company has previously received downgrades from analysts at investment banks like Wells Fargo and Moffett Nathanson, traders believe the catalyst for the stock price to fall was something else.
On Monday, shares of ViacomCBS closed at a record high. The cable television group then called on Morgan Stanley and JPMorgan Chase to raise nearly $ 3 billion through a sale of shares.
From the moment the press release came out announcing the stock sale, the stock of ViacomCBS started to fall. Shares closed 9% lower on Tuesday before falling another 23% on Wednesday.
“I don’t think anyone saw him trade like that,” said one banker briefed on the deal, who added that the capital increase was “probably too big”.
A source said they were told that the declines that had started at ViacomCBS following its capital increase had started to hit a family office hard, forcing it to unravel its positions, while a second said that Morgan Stanley has confirmed that at least some of the transactions originated from the same seller.
But the sheer size of the sales raised questions as to whether several funds or family offices were ill-founded.
It follows an unusual three-month trading period in ViacomCBS and Discovery shares. Company shares had risen 170 and 148 percent respectively, between the start of the year and Monday’s close. They were the two best performing stocks on the S&P 500, up more than twice as much as the next best performing stock.
Morgan Stanley, Goldman Sachs and ViacomCBS declined to comment.
