Banks could face up to $10 billion in losses stemming from the Archegos liquidation, JPMorgan says
- Banks could face up to $10 billion in losses stemming from the liquidation of Archegos, according to JPMorgan.
- JPMorgan said it expects full disclosure from Credit Suisse by the end of the week regarding its losses.
- The analysts previously had estimated bank losses between $2 billion to $5 billion.
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Banks could face up to $10 billion in losses stemming from the liquidation of Archegos Capital Management, according to JPMorgan.
The hedge fund used borrowed money to make large bets on some stocks, until Wall Street banks forced the firm to sell over $20 billion worth of its shares after failing to meet a margin call.
Japanese firm Nomura Holdings said it could suffer a possible loss of around $2 billion, while Credit Suisse Group, which has declined to provide a numerical impact, could see around $3 billion-$4 billion, according to reports. JPMorgan said it expects full disclosure from the Swiss bank by the end of the week.
"We see the losses as very material in relation to lending exposure for a business that is mark-to-market and holds liquid collateral," JPMorgan said in a note on Tuesday. The research, led by Kian Abouhossein, added that the losses both banks detailed are "not an unlikely outcome."
The analysts previously had estimated bank losses of $2 billion-$5 billion.
JPMorgan added that the use of equity-swaps increased the inability of private banks "to see the concentration risk in holdings within the hedge fund."
"We are still puzzled why [Credit Suisse] and Nomura have been unable to unwind all their positions at this point," the analysts said. "We suspect potentially poor risk [management] may be an issue here…"
The implosion of the hedge fund over its derivatives holdings caused wide-spread chaos on Wall Street, although Paul Schatz, president and founder of Heritage Capital, said it should not come as a surprise given the opaque and volatile nature of the swaps markets.
The US-based Archegos manages the wealth of its billionaire founder, who like other alums of the legendary Tiger Global Management, carries the honorary title of "Tiger Cub." Hwang pleaded guilty to wire fraud in 2012.
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