The night before Archegos Capital’s story came to the public, late last month, the fund’s biggest brokerage quietly canceled some of the risky positions to hedge funds. Trade told CNBC.
Morgan Stanley sold about $ 5 billion in stakes from Archegos’ doomed stakes in U.S. media and Chinese tech titles to a small group of hedge funds late Thursday, March 25, as people requested anonymity. To speak honestly about the transaction.
It’s a previously unreported detail that illustrates the extra steps some banks take to protect themselves from customer collapse losses. The move has a positive effect on Morgan Stanley, the world’s largest equity store and shareholders. While the bank escaped the incident with no material losses, other companies were fortunate, Credit Suisse said Tuesday it suffered a $ 4.7 billion hit after easing the Archegos position loss.The company also cut dividends and halt. Repurchase
Morgan Stanley obtained the consent of Archegos, operated by former Tiger Management analyst Bill Hwang, to buy rounds of stock on Thursday, the people said. The bank offers a discount on its share price, telling hedge funds it is part of a collateral call that can prevent the collapse of unnamed clients.
But the investment bank had information not shared with stock buyers: a basket of stocks sold, made up of eight or more names, Baidu and Tencent Music, was just the launch of an unprecedented wave of tens of billions. Dollar sales by Morgan Stanley and other investment banks begin the next day.
Some clients felt betrayed by Morgan Stanley because they had not received such critical context, according to one of the people familiar with trading. The hedge fund later learned in news reports that Hwang and his top brokerage met on Thursday night to try and loosen his position in order, a difficult task considering the risks that the term would have. Fell out
That means at least some of the bankers at Morgan Stanley knew the extent of the likely sale, and that Hwang̵7;s company was unlikely to survive, these people argue. The knowledge helped rival Morgan Stanley and Goldman Sachs avoid losses as companies quickly sold Archegos-linked shares.Morgan Stanley and Goldman declined to comment for this article.
Morgan Stanley was the largest of the top ten shareholders that Archegos traded at the end of 2020, with an overall position of about $ 18 billion, according to analysis of filings by market participants Credit Suisse was the most disclosed. Second place with an estimated $ 10 billion, these sources noted. That means Morgan Stanley could face an estimated loss of $ 10 billion if it didn’t act swiftly.
“I think it was the ‘oh —‘ moment that Morgan was looking at just $ 10 billion in losses from their book, and they had to quickly take a risk. “A knowledgeable person said
While the sale of Goldman’s $ 10.5 billion Archegos-related stake on Friday, March 26, was widely reported after the bank sent an email to a broad client list, Morgan Stanley’s move the night before. That would not have been reported so far, as banks deal with less than half. A dozen hedge funds keep transactions hidden.
Client, which is a sub-type of hedge fund sometimes referred to as “Equity market strategies” generally do not have an opinion on the merits of an individual stock. Instead, they’ll buy stock blocks from major brokers like Morgan Stanley and others when the discounts are deep enough, usually loosening their trades over time.
After Morgan Stanley and Goldman sold the first stake with Archegos’ consent, the floodgates opened. Leading brokers, including Morgan Stanley and Credit Suisse, then exercised their rights under default, seized company collateral and sold their positions on Friday, according to the sources.
At the time of the stock trading on Friday in late March, another change was made: Some hedge fund investors who took part in Thursday’s sale bought more shares from Goldman, which later. It hit the market at a price of 5% to 20% below Morgan Stanley sales.While these positions were deep underwater that day, several names including Baidu and Tencent rebounded, allowing hedge funds to dismiss. Position for profit
“It is a massive cluster of five banks trying to mitigate billions of dollars at the same time without discussing, trading anywhere that is priced to benefit itself,” said one industry source.
Morgan Stanley has largely left Archegos by Friday, March 26, except for one holdout: 45 million shares of ViacomCBS, which were sold to customers on Sunday. The bank’s delayed sell-off of Viacom has raised questions and speculation that the shares hold because it wants a Morgan Stanley-operated secondary offering in the week before closing.
It would even leave some hedge fund clients less excited. But Morgan Stanley is unlikely to lose them during the Archegos episode, People said.
That’s because the fund wants access to the shares of the fiery initial public offering that Morgan Stanley, the top banker in the U.S. technology industry, can do.