A Wave of Hedge Funds Defaults Risk Global Banking Crisis
Swiss banking giant Credit Suisse may have suffered a “highly significant” loss from a default by a U.S. based hedge fund on margin calls that it and other banks made last week.
Associated Press is reporting a massive wave of hedge fund collapses on the horizon may become a reality. Credit Suisse warns of “highly significant” losses from a U.S. Hedge Fund client but is also being signaled by Japan’s Nomura Bank that is also warning it could suffer a $2 billion loss.
Credit Suisse, Normura and other global banking institutions aren’t identifying the identity of the hedge funds or what other banks have been affected. The Associated Press (AP) and other news outlets are pointing to New York-based Archegos Capital Management. However, the reports indicate Archegos Capital Management was unable to meet the funding needed to respond to margin call commitments and Credit Suisse, Normura and other banks are in the process of exiting the positions. Archegos was unable to fortify with the needed funds to meet the margin calls.
According to AP and The Financial Times reported that Archegos exposures to ViacomCBS and several Chinese technology stocks have been cascading down in price due to the continuing business problems of ViacomCBS and what appears a military buildup by China to invade Taiwan that will further strain U.S. Chinese relations.
Margin calls are triggered when investors, money managers, and even hedge funds borrow against their stock portfolio as collateral and have to make up the balance required by banking institutions when share prices fall, reducing the pledge collateral falls’ value.
AP is reporting Credit Suisse said that …
“While at this time it is premature to quantify the exact size of the loss resulting from this exit, it could be highly significant and material to our first-quarter results, notwithstanding the positive trends announced in our trading statement earlier this month.” Credit Suisse said that it plans to issue an update “in due course.”
Meanwhile, Nomura released a statement on Friday saying…
“An event occurred” that could subject one of its U.S. subsidiaries to a loss of $2 billion based on market prices on Friday.”
The bank made a point that said: “there will be no issues related to the operations or financial soundness” of Nomura or its U.S. subsidiary.
Banks Warn On Losses As US Hedge Fund Liquidates On Margin Call