Archegos – how a massive fund bust has hit banks
The collapse of Archegos Capital Management has caused big losses at the banks that lent it money to bet on stocks. Matthew Partridge reports


Shares in investment banks Credit Suisse and Nomura sank by more than 10% this week after they warned of “substantial losses” , says Quentin Webb in The Wall Street Journal. Credit Suisse says its loss could be “highly significant and material” to its first-quarter results, while Nomura reckons it could lose up to $2bn (it made $2.82bn between April and December 2020). The losses stem from “fire sale of stocks” involving around $30bn of assets that occurred after Archegos Capital Management, a family investment vehicle managed by Bill Hwang, failed to meet a margin call. The banks, which lent the fund money to bet on stocks, had to sell off the stricken fund’s losing positions.
Both banks should have been more alert to the risks, say Antony Currie and Jennifer Hughes on Breakingviews. While the amount of leverage Hwang used wasn’t “excessive”, there were “plenty of other warning signs”. The fund’s concentrated positions in high-risk technology stocks “such as Baidu, Discovery and GSX Techedu” were a red flag, as was the use of derivatives, possibly to mask his positions. Hwang himself was also a “walking risk factor”: he was “banned from trading in Hong Kong for four years” after one of his previous funds, Tiger Asset Management, was involved in “wire fraud”.
Who else is affected?
Nomura and Credit Suisse are unlikely to be the only banks involved, says Erik Schatzker and Sridhar Natarajan on Bloomberg. Goldman Sachs appears to have “fuelled a pipeline of billions of dollars in credit” for Hwang to make “highly leveraged bets” on tech stocks; the bank has admitted that it was involved in selling at least $10.5bn of Hwang’s portfolios last week. However, it seems to have gotten off lightly, since it has reportedly told clients and shareholders that it believes that any losses sustained as a result of the sales “are likely to be immaterial”. Whatever happens to the banks involved, the collapse of Archegos Capital Management is also likely to be bad for the shares of the companies it was betting on, says Edmund Lee in The New York Times. A case in point is the media company ViacomCBS, which fell by 50% last week after rising nearly tenfold in the past year. Part of this decline was due to the decision to “offer new shares to raise as much as $3bn”, which prompted a number of analysts to downgrade its price. But the sale of 30 million shares by Archegos Capital Management on Friday was undoubtedly key.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
At least ViacomCBS was sensible enough to use the share-price boom to raise cash before the bottom fell out of its shares, says Lex in the Financial Times. However, the collapse of Archegos Capital Management is a reminder that record stockmarket valuations mean that “altitude sickness exacerbated by leverage” is an “ever-present risk”. Investors need to ponder whether the “reckoning” over high equity valuations will spill over “into other stock and investment funds”.
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.
He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.
Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.
As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.
Follow Matthew on Twitter: @DrMatthewPartri
-
Small UK industrial stocks are hidden gems
Opinion Ed Wielechowski of the Odyssean Investment Trust highlights three of his favourite British small-cap industrial stocks
-
Aurora Innovation is running on empty – is it overvalued?
Aurora Innovation, a maker of self-driving trucks, may have promised far more than it can deliver
-
'Ride the recovery in emerging markets': Gustavo Medeiros of Ashmore Group tells MoneyWeek
Interview What's the outlook for emerging markets? Gustavo Medeiros, head of research at Ashmore Group, gives his analysis and reviews progress in developing economies
-
What is the Enterprise Investment Scheme and should you have one?
The Enterprise Investment Scheme is tax-efficient and potentially lucrative. Taking a chance on the scheme could trim your family’s IHT bill, says David Prosser
-
The alcohol industry is suffering as consumers sober up – is it still worth investing in the sector?
Changing consumer tastes are rocking the alcohol industry, but the best players are adapting their strategies. Buy them while their shares are still cheap
-
A strange calm in credit
Corporate bond markets remain remarkably relaxed, with yields that offer little compensation for risks
-
'The City's big bet on green finance fails to pay out'
Opinion Insurers and banks are backing away from “green finance”, and there is not much sign of the green boom we were promised. That’s a problem for the City
-
Why is English football thriving – and can it last?
What has gone so right for English football? The national team has found its feet; the Premier League is swimming in money and profits are soaring