Nomura and UBS latest banks to reveal impact of Archegos collapse
Japanese lender takes $2.3bn hit in first quarter with Swiss bank forecasting a total $861m loss
Last modified on Tue 27 Apr 2021 10.22 EDT
Bank losses linked to the collapse of Archegos Capital Management have topped $10bn, after Nomura and UBS became the latest global banks to reveal the true impact of the hedge fund’s failure on their finances.
Some of the world’s largest investment banks have been left nursing billions of pounds worth of losses as a result of their exposure to Archegos, the personal hedge fund of the New York-based billionaire Bill Hwang.
The combined financial hit has now pushed past the $10bn mark, after Japanese lender Nomura revealed a $2.3bn hit from Archegos in its first quarter results, resulting in its largest quarterly loss since the 2008 financial crisis.
Nomura warned that it was likely to see further losses in the months ahead that would bring its total losses to at least $2.9bn. That is more than the $2bn hit forecasted by the lender last month and confirms Nomura as the second-hardest-hit lender following the hedge fund’s failure, behind Credit Suisse.
The Archegos debacle also ate into UBS earnings, with the Swiss lender forecasting a total $861m loss, having booked a $774m charge in the first three months of the year.
“This is not as large as the $5.5bn for Credit Suisse, but nevertheless shows how the fallout was wider than initially thought,” said Neil Wilson, chief market analyst for Markets.com.
Global bank losses due to Archegos collapse
Global bank losses due to Archegos collapse
Some of the world’s largest investment banks have been left nursing billions of pounds worth of losses due to their exposure Archegos Capital Management, the personal hedge fund of New York-based billionaire Bill Hwang.
Here are the total losses, reported and forecasted by the lenders so far:
Credit Suisse: 5bn Swiss francs ($5.5bn)
Nomura: $2.9bn
Morgan Stanley: $911m
UBS: $861m
Total: $10.2bn
The impact stems from Archegos’s failure to meet a margin call in March. The resulting fire sale of assets, which initially included high-profile US media stocks, flooded the market and resulted in lower returns for investment banks that were trying to unwind the hedge fund’s position and recoup their losses.
The margin call, which is usually triggered when the total value of assets held in a firm’s prime brokerage account falls below an acceptable level, required Archegos to top up its account with extra cash or collateral.
When it failed to meet that demand, the investment banks tried to minimise potential exposure to losses by selling shares and other assets from the Archegos’ accounts.
But lenders like Credit Suisse have taken a hit after failing to recoup losses through the sell-off.
The Swiss bank has been rattled by the hedge fund’s collapse, having been forced to take a SFr4.4bn (£3.4bn) charge in the first quarter and warning of a further SFr600m hit as it unwinds the rest of Archegos’s positions.
It pushed Credit Suisse to what executives called an “unacceptable” first quarter loss, that wiped out what would have been its best quarterly performance in at least a decade. It has also prompted bonus cuts, the ousting of key executives and a regulatory investigation by the Swiss financial watchdog, Finma.
US lender Morgan Stanley said earlier this month that it had taken a $911m loss, overshadowing a 150% jump in profits in the first three months of the year.
Others lenders including Goldman Sachs, Deutsche Bank and Wells Fargo also counted Archegos as a clients, but have reportedly exited those positions without taking losses.
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