Credit Suisse bid to head off Archegos crisis ends with rival banks brawling before Goldman sets off fund implosion

Forced liquidation of stocks leads to one of the biggest hedge-fund debacles since Long Term Capital Management in 1998

Archegos built positions using total return swaps, derivatives that allows family offices to hide their leveraged stock bets from public view

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Bill Hwang, CEO and founder of Archegos Capital Management. SCMP Pictures

Published: 2:40pm, 30 Mar 2021Updated: 2:40pm, 30 Mar 2021

Alarms were blaring inside Wall Street’s corridors of power in the middle of last week, as executives realised they might be facing the biggest hedge-fund blowup since Long-Term Capital Management in the 1990s.

Global investment banks, gathering in a hastily arranged call, needed a swift truce to deal with Archegos Capital Management – managed by former Tiger Asia hedge fund manager Bill Hwang – if they were to head off billions of dollars in losses for banks and a potential chain reaction across markets. Yet by Friday, it was everyone for themselves, precipitating one of the fastest blow-ups in investment history.

The forced liquidation that sent bellwether stocks tumbling last week and continues to send shock waves across capital markets, was preceded by bickering in the highest rungs of international finance that quickly devolved into finger-pointing and now fury, according to people with knowledge of the situation. Banks are just starting to tally the carnage.

A person walks past 888 7th Ave, a building that reportedly houses Archegos Capital Management in the Manhattan borough of New York City. Photo: Reuters

So far, Credit Suisse and Nomura have told shareholders their businesses face “significant” losses. Goldman Sachs, ahead of the pack on unloading positions, is telling investors the impact on its financial results will probably be immaterial. Deutsche Bank said it escaped too. Morgan Stanley, another big player that was still shopping blocks of stock as late as Sunday night, has yet to specify any toll.

Emissaries from several of the world’s biggest prime brokerages tried to head off the chaos by holding a call with Hwang before the drama spilled into public view Friday morning. The idea, pushed by Credit Suisse, was to reach some sort of temporary standstill to figure out how to untie positions without sparking panic, the people said.

But any agreement was elusive, and by Thursday night, some banks had shot off notices of default to Archegos to seize collateral and potentially shop it to buyers to contain the banks’ potential losses, the people said. Yet even then, it wasn’t clear when terms with Archegos would allow sales to proceed, one of the people said.

The logo of Swiss banking group at its headquarters in Zurich, Switzerland on March 24, 2021. Photo: Reuters

Soon came the finger-pointing over who was breaking ranks, the people said. Some emerged from the talks suspicious that Credit Suisse wasn’t fully committing to freezing sales. By early Friday, rival banks were taking umbrage after hearing that Goldman planned to sell some positions, ostensibly to assist Archegos. Morgan Stanley began drawing public attention with block trades.