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ADMIN 2021. 12. 02.  
   제목: Banks Face Billions in Losses as a Bet on ViacomCBS and Other Stocks Goes Awry

Banks Face Billions in Losses as a Bet on ViacomCBS and Other Stocks Goes Awry

Bill Hwang, right, with his lawyer Lawrence Lustberg in 2012, runs Archegos Capital Management, which bet that shares of ViacomCBS, among other companies, would rise. They fell last week instead.

By Kate Kelly, Matt Phillips, Andrew Ross Sorkin and Alexandra Stevenson

March 29, 2021

Turmoil surrounding a little-known firm run by a onetime star trader rippled through Wall Street on Monday, exposing banks to billions of dollars in losses and highlighting yet again the potential of individual players to hobble an intricately connected but largely opaque financial system.

The huge sell-off of stocks linked to Archegos Capital Management also raised questions about how and why some of the biggest Wall Street banks were willing to do business with someone who, less than a decade ago, was fined and penalized by securities regulators.

The sudden upheaval was an example of what happens when a highly risky strategy meant to increase returns clashes with an apparent run of bad luck.

Late last week, Archegos a more than $10 billion fund led by Bill Hwang, a 57-year-old investor who cut his teeth at the hedge fund Tiger Management before becoming embroiled in an insider-trading scheme couldn뭪 meet the financial demands of several banks. That prompted them to sell off billions of dollars in equities they essentially held on his behalf to protect their own balance sheets. Among them: millions of shares of ViacomCBS, the corporate parent of the country뭩 most-watched network; the media company Discovery; and a handful of Chinese technology firms.

밠arkets will be sniffing for signs of stress elsewhere over the next few days, said Christopher Smart, chief global strategist and head of the Barings Investment Institute. Investors and traders will 뱇ook to see who may have extended their balance sheets too far for the bumpy ride ahead, he added.

While stock markets were whipsawed by the saga surrounding Mr. Hwang뭩 firm, much of his trading activity actually took place in the separate, but closely related, market for derivatives complex financial instruments that sophisticated investors use to make bets with Wall Street trading desks about where stock prices will go, without having to buy the actual shares. For investors like Mr. Hwang, the use of derivatives means that their total exposure to a stock can be far greater than the amount of cash they put up.

Since such trades are inherently risky, investors typically post margin cash or cash-like securities sufficient to cover a share of the trade with the bank. These margin requirements are adjusted daily to enable the bank to demand more cash if the trade goes wrong.

Using derivatives known as 뱒waps, Mr. Hwang had bet that the prices of certain stocks, including ViacomCBS, would rise. But last week, the prices of some of those companies fell instead ViacomCBS, for one, sold more than $2.6 billion of new shares, taking advantage of what appeared to be a high-flying stock price that had risen to $100 from $12 in under a year. But it misjudged the appetite: Investors were only willing to buy shares at less than market value for the company, which led to a sell-off. Shares of two Chinese companies that Archegos had also bet on RLX Technology and GSX Techedu also fell precipitously last week.

Since the shares were now trading in the opposite direction of Mr. Hwang뭩 bets, the banks which typically hold the shares to offset the risk of the client뭩 trade asked Archegos to post more collateral so they could minimize any potential losses. Mr. Hwang뭩 firm did so initially, a person familiar with the matter said, but then it couldn뭪, at which point his lenders became unnerved and began a fire sale of those stocks.

The large blocks of shares suddenly coming into the market depressed prices further. By Monday, investment banks around the world were scrambling to calculate the damage. At least two, the Japanese bank Nomura and Credit Suisse, warned that the hits to their balance sheets would be ugly. Though Nomura did not identify Archegos as the client at the center of the losses, the bank said its claim against the unnamed client was about $2 billion. Other banks that lent to Archegos, including Goldman Sachs and Morgan Stanley, were still figuring out their total exposure, although both banks were expected to see minimal losses.

The flood of shares into the market helped wipe out billions of dollars in shareholder wealth, adding to the mounting losses for shares of ViacomCBS, which has shed more than half its value in a week. On Monday, shares of ViacomCBS fell 6.7 percent to $45.01. The S&P 500 closed down less than a tenth of a percent.

밫his is a challenging time for the family office of Archegos Capital Management, our partners and employees, a spokeswoman for the firm, Karen Kessler, said on Monday evening. 밃ll plans are being discussed as Mr. Hwang and the team determine the best path forward.

The impact of Archegos뭩 stumble underscored the risks to the financial system from sophisticated investors who work with Wall Street banks to make bets using leverage. When the going is good, leverage can amplify returns. But on the flip side, it can enlarge relatively minor market setbacks and force a run of selling that takes on a life of its own.

Excerpts articles from The New York Times

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