Investment banks tumble over US hedge fund defaults on massive margin call

Several investment banks are facing huge losses after US hedge fund Archegos Capital defaulted on a margin call. The margin call follows around a US$20bn ‘fire sale’ of individual stocks late on Friday, including ViacomCBS, Discovery, GSX Techedu and other Chinese tech companies , now thought to have been made by Archegos after it suffered significant losses. Japanese bank Nomura said it faced a possible US$2bn loss due to transactions with a US client and Credit Suisse said “a significant US-based hedge fund defaulted on margin calls made last week” and this was likely to be “highly significant and material” to its first-quarter results. Following the failure of the unnamed fund to meet these margin commitments, “Credit Suisse and a number of other banks are in the process of exiting these positions”. Sources named the US client as Archegos Capital Management, run by former Tiger Asia manager Bill Hwang. With investors concerned about who else had been caught out, shares in Deutsche Bank and UBS also fell, though Barclays (LON:BARC), which has a sizeable investment banking arm, was only down 0.5%. “Bubbles everywhere are a sign of dysfunction and stress, but a fund blowing up is not itself a systemic risk, more of questionable internal risk management,” said Neil Wilson at Markets.com. “Despite the stress this is causing among banking stocks, there is no sign of contagion in broader markets.” Eleanor Creagh at Saxo Bank agreed that from market perspective, contagion is looking limited. “This looks at this stage to be a positioning driven sell off in US futures and various single stock names. Although there is still the risk of further forced deleveraging if prime brokers were to tighten margin requirements,” she said.