Credit Suisse Report: Archegos Family Office Had $120 Billion Total Exposure
30th July 2021 | Hong Kong
Archegos Family Office, Korean-American Bill Hwang family office which operates like a hedge fund, had total exposure of $120 billion in March 2021, causing $10 billion of trading losses to the world’s largest banks including Credit Suisse, UBS, Nomura, MUFJ and Morgan Stanley. Credit Suisse which suffered a loss of $5.5 billion, released a full investigative report, detailing the relationship, built-up to losses and revenue from Archegos Family Office. On 24th March 2021, Credit Suisse had exposure of $20 billion Net Asset Value (NAV) with margin call of $2.5 billion, caused by more than 20% decline in shares of Tencent Music & ViacomCBS, with margin call rising to $2.8 billion on the next day (25/3/21). On an evening call with Credit Suisse (24/3/21), Archegos informed it is unable to meet the margin call and its gross exposure with all prime brokers (financial institutions) is $120 billion ($70 billion long, $50 billion short) with $9 billion to $10 billion of equity, thus entering into a default with Credit Suisse on 25th March 2021. (Credit Suisse Archegos Revenue 2020: $16 million, 2021: Expected $40 million)
“ Credit Suisse Report: Archegos Family Office Had $120 Billion Total Exposure “
Credit Suisse Releases Archegos Family Office Investigation, Severe Actions
With the completion of the investigation of Archegos Family Office, actions were taken on 23 individuals. 9 individuals were terminated and $70 million of compensation were cancelled or clawback. Credit Suisse had also identified and called out individuals who distinguished themselves by having acted in the best interest of the bank.
Conclusion:
- Failure to effectively manage risk in the Investment Bank’s Prime Services business and lack of risk escalation
- Failure to control limit excesses as a result of an insufficient discharge of supervisory responsibilities in the Investment Bank
- Failure to control limit excesses in Risk, as well as a lack of prioritization of risk mitigation and enhancement measures (such as dynamic margining)
The investigation also found that this was not a situation:
- Where the business and risk personnel engaged in fraudulent or illegal conduct or acted with ill intent
- Where the architecture of risk controls and processes was lacking
- Where the existing risk systems failed to operate sufficiently to identify critical risks and related concerns.
Notes:
- The family office full entity name is Archegos Capital Management
- In a proposed managed liquidation (March 2021), Credit Suisse, UBS and Nomura were interested. Deutsche Bank, Morgan Stanley and Goldman Sachs were not interested.
Credit Suisse, UBS, Nomura, MUFG, Morgan Stanley Suffers $9.84 Billion in Losses
In Q1 2021, Korean-American Bill Hwang’s Archegos family office, which operates like a hedge fund, has caused leading global banks including Credit Suisse, Nomura, Mitsubishi UFJ Financial Group (MUFG) and Morgan Stanley to incur trading losses in their Q1 2021 earning results, with total combined losses nearing $10 billion ($9.84 billion). (AUM ~ Assets under Management)
For Q1 2021, the total losses from Archegos nears $10 billion ($9.84 billion) with Swiss banks Credit Suisse, reporting a loss of $5.5 billion and raising $1.92 billion in capital and UBS reporting $861 million in losses. Japanese banks Nomura reported a loss of $2.3 billion and MUFG reported a loss of $270 million. American bank Morgan Stanley also reported a $911 million loss in its Q1 2021 earnings.
Reported Losses from Archegos Family Office:
- Credit Suisse: $5.5 billion
- UBS: $861 million
- Nomura: $2.3 billion
- Mitsubishi UFJ Financial Group (MUFG): $270 million
- Morgan Stanley: $911 million
Archegos Family Office – $50 Billion to $100 Billion Stock Positions
Bill Hwang’s family office is Archegos Capital Management, which has around $10 billion of assets and stock positions of $50 billion to $100 billion. The total stock positions held by Archegos Capital Management in numerous banks were estimated to be between $50 billion to $100 billion, leveraged from assets of about $10 billion (5x to 10x leverage). This is one of the largest publicly known margin call in history by a family office, with the unwinding of more than $20 billion of stock positions and $5 – $10 billion of losses incurred by banks and possibly $10 billion of losses by the family office.
With falling share prices, margin calls were made to meet collaterals requirement on Archegos Capital Management in the last weeks of March 2021. More than $20 billion of stock positions were estimated to be unwinded. This sparked a sell-off in companies such as ViacomCBS, Discovery, Baidu, Tencent, GSX Techedu and iQiyi – further driving down collateral values that support the leverage.
Caproasia Institute estimated the total number of family offices in the world to be more than 15,000 in 2020. Billionaires and UHNWs setup family offices, with assets ranging from $300 million to $3 billion, and some with more than $10 billion assets. Newer family offices are also setting up family offices with $20 million to $100 million.
Bill Hwang, ex-Hedge Fund, Insider Trading, $44 million Settlement
Korean-American Bill Hwang was under the tutorage of hedge-fund legend Julian Robertson at hedge fund, Tiger Asia Management and Tiger Asia Partners with around $5 billion AUM (Assets under Management).
In 2012, the hedge fund was shutdown by United States and Hong Kong for insider trading and manipulating Chinese banks stocks. A $44 million settlement by Bill Hwang and the hedge fund was made with the United States Securities and Exchange Commission (SEC), and Bill Hwang was barred from the investment advisory industry.
Thereafter, Bill Hwang setup his family office, Archegos Capital Management.
Related:
- Credit Suisse Raises $1.92 Billion in Capital, $5.5 billion Losses from Archegos Family Office
- $20 Billion Archegos Leveraged on GSX Techedu & Founder Loses $14 Billion, Name Change to Gaotu on NYSE
- Credit Suisse, UBS, Nomura, MUFJ and Morgan Stanley Losses for Archegos Family Office Nears $10 Billion
- UBS Reports $861 Million Losses from Archegos Family Office, $4.2 Trillion AUM and $1.82 Billion Profit for Q1 2021
- Credit Suisse and Nomura in $6 Billion Hit by Bill Hwang Archegos Family Office
- HSBC UK Faces $1.61 billion Lawsuit for Tax-Efficient Disney Films Investments
- 20 Traders Who Lost More than a Billion
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