The explosion of Archegos and its ripple effect on the markets

The woes that arose from Archegos Capital Management at the end of last week bled until Monday as many of the big banks saw their stock prices drop.

Here’s how the $ 20 billion explosion played out.

On Friday, US media stocks ViacomCBS and Discovery came under strong selling pressure, each losing more than 27%.

A few Chinese Internet ADRs, including Baidu, Tencent and Vipshop, also suffered sales of a similar magnitude last week.

ADRs are US certificates of deposit, essentially a certificate that represents a share of a foreign stock and trades on US stock exchanges.

The culprit for the massive sell-off was a forced liquidation of positions held by multibillion-dollar family office Archegos, CNBC reported.

Archegos, founded by former Tiger Management stock analyst Bill Hwang, had built massive positions in these stocks through swaps, a type of derivative that investors trade over-the-counter or among themselves without having to. publicly disclose holdings.

These swaps generally involve more leverage than usual.

These large, leveraged bets came under pressure after ViacomCBS’s $ 3 billion stock offering via Morgan Stanley and JPMorgan earlier in the week collapsed, triggering a large sell-off of the stock market. last name.

The initial weakness of ViacomCBS sparked a chain of events where prime brokers rushed to exit positions on behalf of Archegos and resulted in a massive margin call. The hedge fund was forced to inject more cash to cover the losses, amassing a forced liquidation of more than $ 20 billion.

The sale of those names continued on Monday with ViacomCBS down more than 8%. The discovery was delayed by more than 3%.

Many of the large banks involved warn of the fallout from certain trades, but do not specifically mention Archegos.

Nomura, headquartered in Tokyo, released a business update on Monday citing a “significant loss” at one of its US subsidiaries resulting from transactions with an unidentified US customer. Japan’s largest investment bank said it was assessing the potential size of the loss, estimated at $ 2 billion. Its shares fell nearly 14% on Monday.

Nomura did not immediately return a phone call from CNBC.

Credit Suisse said so and a number of other banks it did not mention were also affected and started exiting positions with the limited company. Shares of the Zurich-based lender fell more than 15% after the announcement.

“While it is currently premature to quantify the exact magnitude of the loss resulting from this exit, it could be very significant and important to our first quarter results, despite the positive trends announced in our stock market release earlier this month.” , Credit Suisse told me.

He added that he would provide a further update on the matter “in due course”.

Goldman Sachs, Morgan Stanley and Deutsche Bank also facilitated Archegos’ liquidation of its holdings in many Chinese Internet names through unregistered transactions, CNBC reported.

Deutsche Bank said on Monday that it had significantly reduced the risk of its exposure associated with Archegos without incurring losses.

“We are managing down the remaining intangible client positions, on which we do not expect to incur a loss,” the German lender said in a statement on Monday.

Morgan Stanley also avoided significant losses from Archegos transactions, sources told CNBC’s Leslie Picker.

Goldman did not immediately respond to CNBC’s request for comment.

The Securities and Exchange Commission has been closely monitoring the impact of Archegos’ default margin call. “We have been monitoring the situation and communicating with market participants since last week,” an SEC spokesperson said Monday.

– CNBC’s Elliott Smith, Bob Pisani and Scott Wapner contributed reporting.