Credit Suisse and Nomura warn of “significant” losses following US hedge fund-driven fire sale

burning cash

Credit Suisse and Nomura are facing “significant” losses after a US hedge fund client – said to be Archegos Capital Management – failed to meet margin calls on certain portfolio positions.

In a statement this morning, Credit Suisse said a “significant US-based hedge fund” defaulted on margin calls made last week by a number of investment banks. The Switzerland-headquartered bank added it would be tough to quantify the size of losses at this stage, but warned of a “highly significant and material” hit in its first quarter results.

In a separate statement, Nomura said last week’s margin call default “could subject one of its US subsidiaries to a significant loss.”

The blow is said to be a result of Archegos offloading some USD20 billion of positions on Friday, reckoned to comprise a range of US and Chinese stocks including ViacomCBS and Discovery.

The banks, which reportedly act as prime brokers to Archegos, are now in a process of exiting the positions following the failure of the fund to meet the margin commitments.

New York-based Archegos is run by Bill Hwang, one of a number of so-called “Tiger Cubs” who once managed money at Julian Robertson’s renowned Tiger Management before striking out on their own. Other former Tiger Cub portfolio managers include Chase Coleman, the billionaire found of equity-focused Tiger Global Management, and Martin Hughes, who leads Toscafund.

Nomura said it will continue to evaluate the extent of the possible loss following the fire sale, and the impact it could have on its consolidated financial results. 

“The estimated amount of the claim against the client is approximately USD2 billion based on market prices as of 26 March. This estimate is subject to change depending on unwinding of the transactions and fluctuations in market prices,” the Japanese bank said.

It added: “As of the end of December 2020, Nomura maintained a consolidated Common Equity Tier 1 ratio of over 17 percent, which is substantially higher than the minimum regulatory requirement. Accordingly, there will be no issues related to the operations or financial soundness of Nomura Holdings or its US subsidiary.”