Archegos Capital Management, a private investment first based in New York, resorted to a huge fire sale of stocks worth $20 billion on Friday that caused big drops in the share prices of companies linked to the investment firm, putting markets on edge about the scale of the possible fallout.
The fire sale of about $20 billion of Archegos assets, comprising Chinese and US stocks, has sent jitters in the global financial markets, raising worries that the event could be a possible “Lehman moment” that would force multiple lenders – mainly Credit Suisse and Nomura — to suffer huge losses and recognise that leverage extended to the fund had created excessive risk. The huge margin call on Archegos was the major driver behind last Friday’s steep sell-off and the subsequent hits to several global bank balance sheets.
Archegos Capital Management, a private investment firm based in New York, resorted to a huge fire sale of stocks worth $20 billion on Friday that caused big drops in the share prices of companies linked to the investment firm, putting markets on the edge about the scale of the possible fallout. Nomura said on Monday that it faced a possible $2 billion loss due to transactions with a US client while Credit Suisse said a default on margin calls by a US-based fund could be “highly significant and material” to its first-quarter results.
The fund, which had large exposures to Viacom CBS and several Chinese technology stocks was hit hard after shares of the US media group began to tumble last Tuesday and Wednesday. The decline in stock prices prompted a margin call from one of Archegos’s prime brokers, triggering similar demands for cash from other banks. Shares in Viacom CBS and Discovery tumbled around 27% each on Friday, while US-listed shares of China-based Baidu and Tencent Music plunged during the week, dropping as much as 33.5% and 48.5%, respectively, from Tuesday`s closing levels.