UH OH ARCHEGOS!!
What Could Go Wrong?
Hwang Pleaded Guilty To Insider Trading In 2012.
He Was Deemed Such A Risk That Goldman Refused To Do Business With Him As Recently As 2018.
He Was Able To Secure 8:1 Leverage & As High As 20:1 Leverage Via His Prime Brokerage Accounts & The Swaps/Contracts.
Unlike any other “Family Office” by labeling himself as one he was able to dodge any regulatory scrutiny
UPDATE:
Estimates put Credit Suisse’s losses up to $4B, with Nomura up to $2B. JPMorgan estimated total bank losses to be in the range of $5B to $10B.
Here Is The Untold Truth Of SpaghettiO’s
When looking up the word “ARCHEGOS” the definition means the beginning or the start – as in ‘Zeus was the Archegos’ of the Gods.”
Sadly it was an all too ironic name for something which some are pointing at and saying maybe a preview of how vulnerable our financial system is. Others are even pointing to the fact that this may bring regulatory scrutiny to the Family Office Space.
What is….or shall we say what WAS Archergos?
A ReCap from Wall Street Beat Writer – Andrew Ross Sorkin in his daily “Deal Book” Blog
“What we’ve learned so far: Archegos manages the personal fortune of the former hedge fund mogul Bill Hwang, who won Wall Street’s business despite having pleaded guilty to insider trading years ago. It amassed huge positions in media giants like ViacomCBS and in several Chinese tech companies — largely with borrowed money. The Archegos strategy included using swaps and sophisticated contracts that gave Mr. Hwang exposure to companies’ shares while hiding both his identity as well as how big his positions were. It is also becoming apparent that several Wall Street banks lent him money without knowing that others were doing the same thing for the same trades. Trouble for Mr. Hwang, and his banks, arose when the prices of those stocks started to fall. That prompted some of his lenders to demand cash to cover his bets. When they began to question his ability to do so, some of them, including Goldman Sachs and Morgan Stanley, seized some of his holdings and kicked off the sale $20 billion worth in huge block trades. That forced selling led to even bigger drops in the prices of those stocks, starting a vicious circle.”
What Are The Additional Details?
Archegos Capital, the family office run by Bill Hwang that was pushed to liquidate, was forced to sell more than $20b of stocks on Friday after margin calls, Bloomberg reported, citing two people familiar.
- Goldman Sachs (NYSE:GS) emailed clients late Friday to inform them it was one of the banks selling, detailing a total of $10.5b in trades, though it didn’t identify Archegos or Hwang, according to Bloomberg.
- The Wall Street Journal is reporting $30b in stock sales and is adding that Deutsche Bank (NYSE:DB) was also selling large blocks of stock. Goldman Sachs and Morgan Stanley have also been reported as offering the block trades.
- Hwang, a Tiger cub who pleaded guilty to insider trading in 2012 when he worked for Tiger Asia Management, was deemed such a risk that Goldman, as recently as 2018, refused to do business with him, Bloomberg reported.
- The billions of dollars in block trades on Friday from Goldman Sachs and Morgan Stanley (NYSE:MS) included ViacomCBS (NASDAQ:VIAC), Discovery (NASDAQ:DISCA), Baidu (NASDAQ:BIDU) and GSX Techedu (NYSE:GSX).
- Archegos is estimated to have managed about $10b of personal wealth for Hwang and his family, according to the WSJ. People close to the stock sales told the paper that most of the selling had been completed.
- The Archegos fund was highly levered and had very concentrated positions in companies and held some via swaps, according to the WSJ. The fund was estimated to have had exposure to the economics of more than 10% of multiple companies’ shares.
- Goldman and Morgan Stanley were working with Archegos on Thursday to help the fund sell stock it had posted as collateral, the WSJ said. On Friday though, many banks chose to seize the stock Archegos had posted as collateral and sell it to cover possible losses, in some case “as quickly as possible.”
“An Industry Take”
What Follows Is From Anonymous Writer:
This Capital Markets Professional From Outside Of Our Firm Reflects On Todays Archegos News:
Today, the sell-off/liquidation of $30 Billion from Archegos Capital continued which originally started on Monday of last week when ViacomCBS (VIAC) dropped in value from $100 to $45 in 5 days with a number of other tech and Asian Tech stocks suffered as well.
Now, this all comes from a play gone wrong of Archegos Capital. Archegos Capital is a family office owned by Bill Hwang. Bill Hwang was a protege back at the prestigious hedge fund Tiger Global Management. They received a margin call and were forced to liquidate their positions while they were leveraged by a number of the top prime brokerage banks out there.
I believe there is some misconception or to put in better words people are so quick to judge. Because Archegos Capital Management is a “Family Office”. A Family Office is basically an investment entity for a Ultra High Net Worth Individual, Family or entity. You just hire a team rather to work for you and develop your own investment arm instead of hiring a broker-dealer. It’s simple. The thought in mind is to grow generational wealth.
But now, people looking from the inside-out simply see a “family office” as some sleazy rich guy’s playground to do whatever he wants to do with his money with no consequences. The news was highlighting that there are less SEC rules and more getting away with situations. Yes, that is true but you are hiring the people to deal with your money, there is no fiduciary responsibility because it is your own money. You made it, you get to do whatever you want with it. Of course, if a person or family was to be part of an inside trade, laundering or something fishy they would get in trouble by the SEC or government just like any other situation that would happen at xyz broker-dealer. But a family office is a family so extremely wealthy individuals can have all their eyes on all their money at all times. That is it. You get to hire your own people, pick your own strategies and fire whoever you want. Anyone who is involved in finance, has had their money invested with a brokerb for a while or has knowledge of wealth management would love and dream of having the ability to have a family office as everything you want to know can be at at your fingertips.
Now that is what the news portrays and caved in by throwing the family office space under the bus. Because what so many people are forgetting is the prime brokerage aspect. You see Me. Hwang originally got caught in 2012 for insider trading and was fined $60mm in a settlement and was banned for over 3 years from trading and having his license. He was also banned by compliance of the top prime bankers out there such as Goldman, Morgan Stanley and Credit Suisse. This is when Mr. Hwang comes up with the brilliant idea of starting his Family Office, Archegos Capital management. Has success, huge success in the long/short game. Then all the prestigious prime brokerage accounts all open their hands and tell Mr. Hwang you know what you can open an account with us. We will forget what happened in the past, we trust you. I mean who wouldn’t want to turn down the opportunity to manage $5 Billion to $30 Billion. That is nearly a commission of $10mm in that brokers pocket every single year. All those banks that had to liquidate were receiving over $5mm via commission each from Bill Hwang. The broker is not necessary doing anything wrong, he is giving Mr. Hwang the opportunity to play with his own money and have an opportunity to triple it, quadruple or even 10X it. Giving the broker an even better chance to make more commission. On the other hand, Mr. Hwang knows the risk, now come on he was a protege at Tiger which is well known for their secrecy on their moves in the market, there is no way he could mess up an opportunity. At the end of the day it is a trade gone really, really bad and everyone’s pointing their fingers at each other.
