The other day, we learned that Credit Suisse, which was left on the hook for $5 billion after dumping blocks of stocks owned by its prime brokerage on behalf of Archegos Capital Management, earned just $17MM in fees from its relationship with Archegos, revealing that the fund was a 300x leveraged time bomb for Credit Suisse.
This helps explain why Lara Warner, the bank’s former risk chief, apparently wasn’t aware of the details of the relationship until days before the blowup: Archegos simply wasn’t an important enough client.
Now, hours after UBS CEO Ralph Hamers and Chairman Axel Weber launched an apology tour to investors after revealing a surprise loss tied to Archegos, the FT reports that Archegos is finally preparing to officially file for bankruptcy protection as Credit Suisse and the other half dozen prime brokers who also worked with the fund threaten lawsuits to try and recover whatever they can to help compensate for the more than $10 billion in losses reported so far.
For the banks, this is now a push to recoup any losses that they can.
According to the FT, the New York-based family office, infamously run by former Tiger Asia head Bill Hwang, has hired restructuring advisers to assess potential legal claims from banks and to plan for a winding down of its operations as it prepares to seek bankruptcy protection.
The biggest question for Archegos is whether it might have recourse for how its brokers unceremoniously dumped the fund’s positions, effectively forcing a firesale that send the fund’s assets to zero.
A person close to the situation said: “There is a question mark over how much the banks are entitled to claim and whether the fund has any recourse for the way the banks behaved when they dumped the stocks. It will come down to what indemnity was in the loan and swap agreements.”
“They have all lawyered up and threatened lawsuits,” the person added. “The banks are all going to claim as much as they possibly can.”
To be sure, it’s not exactly clear how much money the fund has left, though it reportedly had committed (with the same collateral being offered to multiple banks) all its roughly $10 billion in assets to derivatives trades that allowed the firm to take massive positions in companies including ViacomCBS without ever needing to disclose the stake.
All told, the six banks that served as prime brokers for Archegos – Credit Suisse, Nomura, Morgan Stanley, UBS, MUFG and Mizuho – have reported some $10 billion in losses so far.
Lenders are also reportedly investigating whether Hwang’s family office withheld or provided incorrect information about the scale of its borrowing from other prime brokers, with UBS reportedly investigating whether it was “fraudulently induced” to lend to Archegos.
The prime brokers are facing investigations of their own into their risk controls from regulators from the US to Switzerland.
US lawmakers have also pressed these banks to explain why they extended such large levels of credit to Hwang despite his former fund, Tiger Asia Management, being charged with insider trading by authorities in the US and Hong Kong.