Former Tiger cub Bill Hwang’s Archegos Capital mauls investment banks, forcing Credit Suisse, Nomura to warn of significant losses as they count the cost of the world’s biggest margin call

Chad Bray
·5-min read

Global investment banks warned of potentially “significant” losses on Monday after a series of margin calls involving the family office of Tiger Asia Management’s founder Bill Hwang Sung-kook sparked a sharp sell-off in several US-listed Chinese technology firms and American media companies last week.

Archegos Capital Management, the New York family office of Hwang, was forced by its lenders to sell more than US$20 billion in shares, including holdings in Baidu Inc., ViacomCBS and Tencent Music Entertainment Group, according to people familiar with the matter.

Calls placed to Archegos’ office in New York outside normal business hours on Monday were not returned.

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Bloomberg reported on Sunday that Hwang’s family office was behind the trades.

Tiger Asia Management, Hwang’s hedge fund, admitted in 2012 to improperly using insider information to trade Chinese bank stocks and agreed to pay US$60 million to resolve criminal charges. In 2014, Tiger Asia Management and Hwang were banned from securities trading in Hong Kong for four years for insider dealing in shares of two mainland banks.

On Monday, Nomura Holdings warned it could face a “significant loss” arising from transactions with an unnamed US hedge fund believed to be Hwang’s family office, warning its claim against the client was about US$2 billion. The Japanese investment bank’s shares dropped 16.3 per cent in trading in Tokyo on Monday, their biggest intraday drop in a decade.

Credit Suisse separately said it had not determined the level of loss, but the amount could be “highly significant and material” to its first-quarter results as it and other banks seek to exit positions related to an unnamed US-based hedge fund defaulting on margin calls last week. The Swiss bank’s shares declined as much as 10.6 per cent in early trading in Switzerland on Monday.

Goldman Sachs told clients that it expects any losses from the unwinding of trades related to Archegos Capital Management to be immaterial, according to a person familiar with the matter. Goldman declined to comment on Monday.

Some tech companies used the sell-off as an opportunity to buy back shares, while a Citi analyst suggested it could represent a buying opportunity for shares of US-listed Chinese tech names, such as Baidu and Vipshop Holdings.

Tencent Music said that it would repurchase US$1 billion of its American depositary shares (ADSs) beginning on Monday, saying the buy-back programme reflects its board of directors’ “confidence in the company’s business outlook and long-term strategy”. The company’s shares declined 1.3 per cent in New York on Friday.

Friday’s sell-off came against the backdrop of investors beginning to question the eye-popping valuations of some technology firms and the US Securities and Exchange Commission’s implementation of a Trump-era law that could force Chinese firms to delist from American bourses if they do not allow US regulators to review their audits.

“Investor edginess is likely to remain in the Chinese ADRs as well as the broader Hong Kong tech space,” Mohammed Apabhai, Citigroup’s head of Asia-Pacific trading strategies, said in a client note on Monday. “It is likely that there will be continued pressure as long positions continue to be unwound. With volatility in China ADRs increasing, it is possible there are further margin calls and liquidations yet to come.”

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Chinese technology stocks broadly declined in Hong Kong on Monday, but not as sharply as some had feared after Friday’s sell-off in New York.

On Monday, the Hang Seng Technology Index fell 1.9 per cent, while the benchmark Hang Seng Index rose slightly to 28,340.48.

Technology stocks have been under pressure recently as investors rotated out of growth stocks into financial and other more traditional sectors in anticipation of an economic rebound in the second half of the year. Tech stocks have been some of the best performers since the coronavirus pandemic began last year and forced lockdowns across the globe.

“I believe the shift away from the very highly-valued growth sectors towards a broadening out of market returns is likely to persist as we go through the year ‒ not just in Asia, but also in markets globally,” said Paras Anand, chief investment officer for Asia Pacific at Fidelity International. “This will be quite a new phenomenon for many investors, where we have been very used to value rotations being short and sharp in nature, versus one which could potentially have a reasonable duration to it.”

On Monday, Bilibili declined as much as 6.8 per cent in its debut in Hong Kong, but recovered some of those losses in afternoon trading to finish the day down 1 per cent at HK$800. Its weak opening-day performance followed a similar lacklustre debut by Baidu in Hong Kong on March 23.

The Chinese video-streaming platform, which is also traded on the Nasdaq, raised HK$20.2 billion (US$2.6 billion) in its secondary listing in the city last week, slightly below its US$2.8 billion target.

“It’s a reality check,” said Frances Lun Sheung-nim, CEO of Geo Securities in Hong Kong. “Investors are really looking at the valuations. They’re looking at the earnings. Can you really justify paying 1,000 times PE for stocks like this? Or at least 100 times PE? The answer is obviously not.”

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