UK markets open in 4 hours 13 minutes
  • NIKKEI 225

    29,091.08
    +582.53 (+2.04%)
     
  • HANG SENG

    28,748.28
    +126.36 (+0.44%)
     
  • CRUDE OIL

    60.80
    -0.55 (-0.90%)
     
  • GOLD FUTURES

    1,793.70
    +0.60 (+0.03%)
     
  • DOW

    34,137.31
    +316.01 (+0.93%)
     
  • BTC-GBP

    38,533.66
    -1,752.84 (-4.35%)
     
  • CMC Crypto 200

    1,243.39
    -19.58 (-1.55%)
     
  • ^IXIC

    13,950.22
    +163.95 (+1.19%)
     
  • ^FTAS

    3,935.64
    +15.59 (+0.40%)
     

Top banks warn of losses after US fund dumps stocks

·3-min read
Nomura fears a $2 billion loss while Credit Suisse warns of a "signicant" hit from its exposure to a speculative US fund.

Top global banks Nomura of Japan and Switzerland's Credit Suisse warned Monday they could face significant losses following reports of their exposure to a US fund that sold billions in stocks last week.

Neither bank named the client but the warnings follow a Bloomberg News report that a little-known fund sold more than $20 billion in stocks from US media and Chinese companies listed in New York on Friday.

The unusually large sale by Archegos Capital Management, which looks after businessman Bill Hwang's fortune, was carried out directly by major houses Morgan Stanley and Goldman Sachs.

Among the companies sold were top Chinese names such as Baidu Inc, Tencent Music Entertainment Group and Vipshop Holding -- all under pressure at home as Beijing reins in the tech sector -- plus US giants such as ViacomCBS and Discovery.

The share prices all plunged as a result, reportedly causing Archegos Capital Management to seek fresh funding.

On Monday, Nomura shares sank by 16.3 percent in Tokyo after it warned of a potential $2 billion (1.6 billion euro) loss while Credit Suisse fell 14 percent.

Investor concerns drove down stock prices of other European and US banks.

Deutsche Bank fell 3.3 percent, and BNP Paribas and Barclays both gave up 1.9 percent.

Across the Atlantic, Wells Fargo was down 3.6 percent, Morgan Stanley 2.8 percent, JPMorgan Chase 1.6 percent and Goldman Sachs 1.4 percent.

With the global financial system awash in cash as central banks and governments try to keep their economies afloat during the coronavirus pandemic, there have been growing concerns that the money has helped fuel speculative bubbles.

"These developments certainly raise questions surrounding the rise of margin debt and over leveraging," said Sophie Griffiths, market analyst at OANDA.

Stephen Innes, chief global markets strategist at Axi, said investors "are looking with some concern to further large sales hitting financial markets" but the damage should be limited.

"It is essential to realize this is not a move inspired by economic fundamentals; instead, it is an isolated case of poor risk management and will ultimately have few if any lasting macroeconomic implications," Innes said.

- 'Highly significant' loss -

Nomura notably referred to an "event" on Friday which could cause a "significant loss" at one of its US units, putting the price tag at around $2.0 billion.

"Nomura is currently evaluating the extent of the possible loss and the impact it could have on its consolidated financial results," the Japanese bank said in a statement.

It said the estimate was subject to change depending on the unwinding of transactions and market fluctuations.

Nomura said it would make a further disclosure once the impact of the potential loss was determined, but added it would not face any operational issues as a result of the loss.

Bloomberg News, citing people familiar with the matter, said the unnamed client was Archegos.

Already hit by the collapse of British short-term corporate loan specialist Greensill earlier this year, Credit Suisse warned its losses could be "highly significant," without giving a specific figure.

The bank referred to links to an unnamed US investment fund which had defaulted last week on certain margin positions held by it and other banks.

A person familiar with the matter told AFP that the potential losses at Credit Suisse are linked to Archegos.

Like its peers, the bank said it was trying to close its exposure to the fund and would make a further statement in due course.

At Goldman Sachs, the impact of the incident is "immaterial," said a person familiar with the bank's thinking.

Morgan Stanley declined comment.

noo-rl-jmb/lth