On March 29, 2021, Credit Suisse, the Swiss investment bank, announced that it would be facing significant losses related to the collapse of Archegos Capital Management, a New York-based family office run by hedge fund manager Bill Hwang. The fallout from this collapse has been significant, with Credit Suisse reporting a loss of $4.7 billion as a result. However, the impact of the collapse has been felt beyond Credit Suisse, with Asia investors particularly affected by the $17 billion bond wipeout that has ensued.
Credit Suisse’s losses are largely attributed to the bank’s exposure to Archegos Capital Management, which was forced to sell off billions of dollars in securities in a matter of days after a margin call triggered by the sudden decline in the value of ViacomCBS and Discovery, two of the company’s largest holdings. The sell-off led to a sharp decline in the stock prices of both companies and sent shockwaves through the global financial system.
The impact of the Archegos collapse has been particularly felt by Asia investors, with a number of major banks and financial institutions in the region reporting significant losses related to their exposure to the family office. According to reports, banks including Nomura, Mitsubishi UFJ Financial Group, and Mizuho Financial Group have all faced losses related to their dealings with Archegos.
The losses have left many Asia investors “gobsmacked,” according to a report in the Financial Times, with some questioning the risk management practices of the banks involved. The report notes that many banks in the region have been increasing their exposure to structured products and derivatives in recent years, which can be difficult to value and carry significant risks.
The fallout from the Archegos collapse is likely to have significant implications for the global financial system, particularly as it relates to the regulation of family offices and other large investment vehicles. Family offices, which are private investment firms that manage the wealth of high net worth individuals and families, have grown in popularity in recent years, but have largely remained unregulated. The collapse of Archegos has led to calls for greater oversight of these entities, particularly as they can have significant impacts on the broader financial system.
In addition to the potential regulatory implications, the Archegos collapse has highlighted the importance of risk management practices in the financial industry. The sudden sell-off of securities by the family office caught many banks and financial institutions off guard, and has led to significant losses for a number of firms. This has led to questions about the risk management practices of these institutions, and calls for greater transparency and accountability in the financial industry.
Despite the losses incurred by Asia investors, some analysts are optimistic about the future of the region’s financial system. In an interview with the Financial Times, Michael Huenseler, head of investor relations at Union Bancaire Privée, noted that while the Archegos collapse has been a “wake-up call” for the industry, it is also an opportunity to reassess risk management practices and strengthen the overall system.
Overall, the $17 billion bond wipeout resulting from the collapse of Archegos Capital Management has sent shockwaves through the global financial system, particularly in Asia where many investors have been left reeling from significant losses. The fallout from the collapse is likely to have significant regulatory and risk management implications for the financial industry, and could lead to greater oversight of family offices and other large investment vehicles. While the short-term impacts of the collapse are likely to be felt for some time, it is also an opportunity for the industry to reassess its practices and strengthen the overall system for the long term.
