Archegos Capital Blow-Up Forced Liquidation of $30 Billion in Stock on Friday
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As StreetInsider.com pointed out on Friday, while the major indexes were higher something funny was going on under the surface as massive block trades were being sold in Chinese stocks like Tencent Music (NYSE: TME) and Baidu (NASDAQ: BIDU) and recently high-flying U.S. media companies like ViacomCBS (NASDAQ: VIAC) and Discovery (NASDAQ: DISCA). Those fears proved true as reports surfaced over the weekend that former Tiger Asia manager Bill Hwang was forced to liquidate massive positions in his Archegos Capital Management fund.
Stock sales from Archegos Capital approached $30 billion in value, the Wall Street Journal reported.
Archegos held large, leveraged bets in many companies and held many of these positions via swaps, which allowed the fund to maintain anonymity while holding more than 10% economic exposure. The fund's strategy backfired in recent weeks as stocks the fund held began to sell-off.
Goldman Sachs and Morgan Stanley worked with Archegos to sell some of its stock to help post collateral on Thursday and Friday, the Journal reported. However, the selling didn't provide enough collateral. By Friday morning the banks seized the stock Archegos had already posted as collateral and sold it to cover potential losses. "Some of the banks were so concerned about their potential losses that rather than sell in an organized fashion, they chose to sell as quickly as possible," the Journal said.
The Archegos collapse already has one potential bank victim. Nomura Holdings announced that it could have losses of $2 billion related to a US client. That client is thought to be Archegos.
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