By Dhirendra Tripathi
Investing.com – Bank shares were trading weaker Monday as market makers tried to absorb the impact on the sector arising out of their exposure to a struggling hedge fund.
The hedge fund has been identified in various reports as Archegos Capital Management, a family office run by Bill Hwang, a veteran of Tiger Management.
Credit Suisse (NYSE:CS) said a significant US-based hedge fund defaulted on margin calls it, along with other banks, made last week. Friday’s session saw forced liquidation of more than $20 billion in holdings linked to Archegos.
“While at this time it is premature to quantify the exact size of the loss resulting from this exit, it could be highly significant and material to our first quarter results, notwithstanding the positive trends announced in our trading statement earlier this month,” Credit Suisse said.
Nomura (NYSE:NMR) said it was owed about $2 billion by an unnamed U.S. client.
“This estimate is subject to change depending on unwinding of the transactions and fluctuations in market prices,” the Japanese bank said in a note.
Nomura and Credit Suisse ADRs were trading 14% and 11% lower after the revelations but the market fears more names will also come up, given that Credit Suisse said that “other banks are in the process of exiting these positions”.
Goldman Sachs (NYSE:GS) was down 3% while Morgan Stanley (NYSE:MS) was 4% lower. JPMorgan (NYSE:JPM) was doing a shade better but was still down 1.5%.
According to Bloomberg, much of the leverage used by Archegos was provided by banks including Nomura and Credit Suisse through swaps or so-called contracts-for-difference. It means Archegos may never actually have owned most of the underlying securities -- if any at all.