Nomura could face a full wiping of its profits for the second half of the year following an inflammatory sale of around $ 20 billion of Chinese and US stocks linked to a massive asset unwinding by Archegos Capital Management.
Shares of Japan’s largest investment bank fell 16% on Monday morning in Tokyo, wiping out more than $ 3.2 billion from its market cap, as Nomura warned of recent deals with an anonymous client and the risk of a “significant loss” to its US Subsidiary.
Bankers from other institutions providing top-notch brokerage services to Archegos said they understood the fund to be the anonymous client mentioned by Nomura. The Japanese bank provides top-notch brokerage services to Archegos, which was founded by former hedge manager Bill Hwang, they said.
A private investment firm, Archegos was behind billions of dollars in stock sales that captivated Wall Street on Friday. The fund, which was heavily exposed to ViacomCBS and several Chinese tech stocks, was hit hard after shares of the US media group began to fall on Tuesday and Wednesday. These declines prompted a margin call from one of Archegos’ main brokers, triggering similar demands for liquidity from other banks.
Hong Kong and Tokyo hedge funds said on Monday that traders around the world were braces for further block sales in stocks associated with Archegos and other funds that may also be forced to unwind heavily leveraged positions, such as Teng Yue Partners, when trading opens in the United States on Monday. Teng Yue was not immediately available for comment.
Nomura said in a statement that it is assessing the scale of the potential losses, noting that its estimated claim against the client is around $ 2 billion. The company said that figure was based on market prices at the close of U.S. negotiations on March 26 and could rise if asset prices continue to fall.
Jefferies analyst Hideyasu Ban said a loss estimate of $ 2 billion recorded in the quarter ending March 31 would wipe out most of Nomura’s pre-tax profits for the second half of the fiscal year ending this year. week.
Other blue chip brokers who had provided leverage to Archegos said that Nomura’s problems were related to being slower to offload blocks of shares in the market compared to its peers, including Goldman Sachs. and Morgan Stanley.
An executive at a Wall Street bank in Hong Kong said, “It’s unclear why Nomura sat on their hands and racked up these big losses.”
Another Tokyo-based banker said the extremely high level of leverage that Nomura appeared to have extended to Archegos was “baffling”.
Archegos is a family office that manages the wealth of Bill Hwang, a former “Tiger cub” student of Julian Robertson’s legendary Tiger Management hedge fund. It had around $ 10 billion in assets last week, according to prime brokers. New York-based Hwang previously ran hedge fund Tiger Asia, but returned liquidity to investors in 2012 when he admitted electronic fraud relating to Chinese bank stocks.
An executive from a global hedge fund in Hong Kong said, “It’s surprising that a China-oriented fund uses Nomura and is given so much leverage by a Japanese bank. It appears to have been at least four times what a long / short equity fund would normally get. “
Teng Yue Partners, led by fellow club Tao Tao Li, has also been linked with the sale that hit shares of US media groups and Chinese tech firm GSX Techedu last week, according to brokers and traders from foreground in Hong Kong.
Tokyo bankers familiar with the circumstances surrounding the massive sale of Archegos’ assets described the event as a possible ‘Lehman moment’ that would force several lenders to acknowledge that the leverage extended to the fund created excessive risk.
Nomura was one of at least five banks providing prime brokerage services to Archegos, alongside Goldman Sachs, Morgan Stanley, Credit Suisse and UBS, according to people familiar with the matter. Tokyo bankers wondered why Nomura provided high leverage to Archegos, given Hwang’s historic regulatory issues.
Some banks have banned all global trade with Hwang after he settled with US regulators on illegal trading fees in 2012 and was banned from trading in Hong Kong in 2014. However, Nomura did not stop negotiating with Hwang at any time, according to a person familiar with the matter.