Archegos Capital Management dumps stocks worth $20 billion

The fire sale of assets worth $20 billion by Archegos Capital, held mainly as US and Chinese stocks, sends jitters across the global financial markets. The sale could force multiple lenders including Credit Suisse and Nomura to suffer huge loss and recognise the excessive risk created by leverage extended to the funds. Nomura said it faces a possible loss of $2 billion due to transactions of a US client. Credit Suisse is estimated to have lost $3 – $4 billion.

Credit Suisse said in a statement that “A significant US-based hedge fund defaulted on margin calls made last week by Credit Suisse and certain other banks. Following the failure of the fund to meet these margin commitments, Credit Suisse and a number of other banks are in the process of exiting these positions.” Nomura appears to have extended extremely high levels of leverage to Archegos, which banks stated is baffling.

The fund had a large exposure in Viacom CBS, Discovery and several Chinese technology companies. There was a big drop in the share prices of companies linked to the investment firm which prompted a margin call from Archegos’s prime brokers and demand for cash from other banks. Share prices for Viacom CBS and Discovery fell by around 27% each, shares of US-listed China-based Baidu and Tencent Music dropped as much as 33.5% and 48.5% respectively. Traders in hedge funds in Hong Kong and Tokyo are bracing for further block sell-offs.

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