Top banks warn of losses after US fund dumps stocks

Top global banks Nomura of Japan and Switzerland’s Credit Suisse warned yesterday 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 US$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 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.

Yesterday, Nomura shares plunged by 16 percent in Tokyo after it warned of a potential US$2 billion loss while Credit Suisse shed 14 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.