The family office known as Archegos Capital Management made headlines over the weekend and going into Monday as the firm was forced to liquidate positions in order to cover a margin call.
The firm’s founder, Bill Hwang, is known for having a checkered past. In 2012, he pleaded guilty in insider trading and had to return all outside money. However, after setting up Archegos as a family office, banks began competing for his business once again.
Now, it appears that his firm has been pushed to the edge of financial collapse by the use of swaps, which allow for significant leverage. The event that precipitated the collapse was ViacomCBS’ failed $3 billion stock offering last week which led to a decline in share price.
In order to cover his margin calls Hwang had to liquidate significant positions in other names, worth approximately $20 billion. Several banks had exposure to the event, with Nomura and Credit Suisse reporting “significant” losses. It appears that the American banks with exposure were able to exit the positions remaining relatively unscathed.
However, as a result of the crisis, ViacomCBS’ shares are down over 55%, Discovery Communications by over 46%, Tencent Music by 36%, Nomura by 14%, and Credit Suisse by 11%.