Market Extra: ‘This has to be one of the single greatest losses of personal wealth in history,’ says stock-market pro of Archegos margin call

United States

Wall Street on Tuesday saw muted action but investors were still buzzing about the highly leveraged wrongway bet reportedly employed by Bill Hwang’s Archegos Capital Management, which may have saddled many banks with multibillion-dollar losses.

Using derivatives, Archegos, pronounced “Ar-chee-gos” by the company, maintained positions in stocks including ViacomCBS Inc. VIAC, +3.55%,  Discovery Inc. DISCA, +5.36%,  and GSX Techedu GSX, +4.75%,  and was hit by margin calls as the direction of those highfliers turned against the family office.

The downturn in the stocks, with shares ViacomCBS and Discovery registering their worst downturns on record, forced the banks that lent Archegos the money to execute complex derivatives trades to ask the fund to put up more money or unwind the wagers.

Losses at Archegos have triggered the liquidation of massive stock positions in excess of $ 30 billion in value, referred to as block trades, the Wall Street Journal wrote. Some, however, say that Hwang’s fund’s exposures in financial markets approached $ 100 billion.

One Wall Street veteran, Michael Novogratz at Galaxy Digital and an ex-hedge fund manager was quoted by Bloomberg News as offering this unmitigated assessment of the Archegos losses:

“I’ve never seen anything like this —how quiet it was, how concentrated, and how fast it disappeared,” he said. “This has to be one of the single greatest losses of personal wealth in history,” said Novogratz.

A call to Hwang at Archegos offices in New York wasn’t immediately returned but the investment company has issued a comment via a spokeswoman.

“This is a challenging time for the family office of Archegos Capital Management, our partners and employees. All plans are being discussed as Mr. Hwang and the team determine the best path forward,” she said.

The Archegos liquidation may also have hit Credit Suisse Group AG and Nomura Holdings Inc., which said they could incur substantial losses related to recent market turbulence without naming the fund specifically.

The Wall Street Journal reported that the securities business of Mitsubishi UFJ Financial Group Inc. also said it could lose $ 300 million from its exposure to a U.S. client, also without naming the entity behind the losses.

On Tuesday, the Dow Jones Industrial Average DJIA, -0.31%, the S&P 500 index SPX, -0.32% and the Nasdaq Composite Index COMP, all ended the session lower, though shares of Discovery and ViacomCBS closed up sharply.

It isn’t clear how much money Hwang will lose as his fund reportedly managed some $ 10 billion, a fraction of its reported equity exposures. Hwang was a disciple of legendary investor Julian Robertson, who ran Tiger Management and whose alumni are referred to as Tiger cubs.

In 2012, Hwang turned Tiger Asia, which he founded in 2001, into his family office and renamed it Archegos and changed its structure to a family office. The change came after Tiger Asia pleaded guilty to a fraud charge and agreed to pay $ 44 million to settle civil allegations by U.S. securities regulators that it engaged in insider trading of Chinese bank stocks, WSJ reported at the time.