Nomura and Credit Suisse are facing billions of dollars in losses after a U.S. hedge fund, named by sources as Archegos Capital, defaulted on margin calls, putting investors on edge about who else might have been caught out.
Losses at Archegos Capital Management, run by former Tiger Asia manager Bill Hwang, had triggered a fire sale of stocks on Friday, a source familiar with the matter said.
Nomura, Japan’s largest investment bank, warned on Monday (March 29) it faced a possible $2 billion loss due to transactions with a U.S. client while Credit Suisse said a default on margin calls by a U.S.-based fund could be “highly significant and material” to its first-quarter results.
The Swiss bank said that a fund had “defaulted on margin calls” to it and other banks, meaning they were now in the process of exiting these positions.
Two sources said Credit Suisse’s losses were likely to be at least $1 billion.
One of those sources said the losses could go as high as $4 billion, a figure also reported by the Financial Times.
Credit Suisse declined to comment on any estimate.
Nomura shares closed down 16.3%, a record one-day drop, while Credit Suisse shares were down 14%, their biggest fall in a year.
Switzerland’s financial regulator said on Monday it was aware of the hedge fund case and was in touch with Credit Suisse about it.
The Swiss regulator also said several banks and locations internationally were involved.
The Swiss National Bank declined to comment.
In Japan, Chief Cabinet Secretary Katsunobu Kato said the government would carefully monitor the situation at Nomura and that the Financial Services Agency would share information with the Bank of Japan.
Other banks’ shares were affected, with Deutsche Bank down 5%, while UBS was 3.8% lower.
UBS had no immediate comment on its stock prices or exposure to Archegos.
Deutsche’s Archegos exposure was a fraction of what others have, a source familiar with the matter said, adding that the German bank had not incurred any losses and was in the process of managing its position.
A margin call is when a bank asks a client to put up more collateral if a trade partly funded with borrowed money has fallen sharply in value.
If the client cannot afford to do that, the lender will sell the securities to try to recoup what it is owed.
Margin calls on Archegos Capital prompted a massive unwinding of leveraged equity bets.
Shares in ViacomCBS and Discovery each tumbled around 27% on Friday (March 26), while U.S.-listed shares of China-based Baidu and Tencent Music plunged during the week, dropping as much as 33.5% and 48.5%, respectively, from Tuesday’s (March 23) closing levels.
Investors were nervous about whether the full extent of Archegos’ apparent wipeout has been realised or whether there was more selling to come.
(Production: Aleksandra Michalska)