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The crisis of a fund set up by a mysterious investment guru has caused billions in losses for banks – Taloussanomat

The financial difficulties of the hedge fund Archegos Capital have caused large losses for various banks, such as the Swiss Credit Suisse and the Japanese Nomura.

Leveraging leverage and derivatives, Archegos has had to sell large amounts of its shares. These include large technology companies, whose prices were still rising sharply in the early part of the year. Among them are the Chinese search company Baidu and the media company ViacomCBS.

The sale was driven by a “margin call”, a demand from financial institutions lending to Archego for additional collateral as Archegos’ portfolio companies fell.

Additional money has come from tens of billions of dollars in stock sales trained last week by Archegos brokers Credit Suisse, Goldman Sachs, Morgan Stanley and Deutsche Bank.

The term “margin call” has become known from a film of the same name, released in 2011, about the collapse of an investment bank in the financial crisis. The most common bet is that it’s Lehman Brothers.

Kuka on Hwang?

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Archegos’ backbone is a mysterious, South Korean-based investor Bill Hwang. His fund, Tiger Asia Management, went public in the early part of the last decade after U.S. authorities found it guilty of insider trading.

Hwang has kept a low profile since then and has not just appeared in Wall Street financial circles. Founded after Tiger Asia Management, Archegos has avoided government regulation because it has been in the form of a “family office,” a family investment company that is not subject to stricter reporting requirements.

Now the future of Archegos, and at the same time of Hwang, which invested in it, is at stake. The situation is exacerbated by the reckless use of derivatives.

– Nothing like this has been experienced before, said the anonymous director of Wall Street Bank, a financial newspaper To the Financial Times.

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According to news agency Bloomberg, after last week’s share sales, the Securities and Exchange Commission summoned the intermediary banks to an emergency meeting.

“Not yet clear”

No signs of systemic risk for the banking system as a whole have yet been obtained, but the extent of the consequences is only likely to become clear in the coming weeks.

– At this point, it appears that the risk is limited to certain banks and they have not been consulted that this is an operational risk, Nordea analyst Antti Koskivuo commented to the news agency Startel.

Individual banks around Archegos around the world suffered at their worst yesterday from a fall in exchange rates of more than 10 percent.

According to Koskivuo, however, the entire banking sector has survived with relatively few losses. One of the thermometers is the interbank unsecured short money market.

– There are no signs of stress there yet. In the coming weeks, it may be revealed if Archegos has deeper effects, but so far they are not visible, Koskivuo says.

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