In the case of the Archegos family office, which is under pressure, Credit Suisse is said to have tried to get other banks to coordinate. But the motto was: “Save yourself if you can.”
IIn times of need there are basically two modes of behavior. One is fight, the other flight. If you decide to fight, cooperation is one way of increasing your chances of victory. The banks that had granted the troubled hedge fund / family office Archegos such generous loans were probably aware of this. At least there are media reports that Goldman Sachs, Morgan Stanley, Credit Suisse, UBS and Nomura met last week at the instigation of the Swiss to discuss how to deal with the damage from the forced sales of the stocks deposited as collateral could minimize.
Archegos apparently preferred to speculate with so-called CfDs. These are derivatives that are used to bet on price changes. This allows you to trade faster and cheaper because the underlying assets such as shares do not have to be bought and only down payments have to be made. For this, however, collateral must be deposited in the event that the courses move in the wrong direction and that the financing banks can access in an emergency.
It currently remains unclear whether they were able to come to an understanding in the Archegos case, as initially intended. However, it is alleged that Credit Suisse and Morgan Stanley apparently sold a small amount of shares immediately following the meeting. If so, it might have been the drop that didn’t break a barrel, but triggered something like a panicked escape from a possible thunderstorm. In any case, Archegos had already been informed on Thursday evening that the securities would be confiscated, although at that time it was still unclear whether sales were even permitted.
And famously, Goldman Sachs began selling shares of Baidu, Tencent Music Entertainment, and Vipshop Holdings for $ 6.6 billion on Friday, and then shares of Viacom CBS and Iqiyi for $ 3.9 billion. Morgan Stanley followed a few hours later, tossing around $ 13 billion worth of shares in Farfetch, Discovery, Baidu and GSX Techedu. An action based on the motto: “Save yourself if you can”.
„The first cut is the cheapest“
That is just the case with an emergency sale, the FT quotes one person involved. If you’re not the first to flee, you’ll get burned. There would be no honor among banks for whoever comes first, serves first. There have been attempts to meet again at the weekend, but after the price slide on Friday, the idea of stopping sales was not pursued any further. Goldman and Morgan Stanley would not have played. Basically the idea was to act in a concerted action over the weekend, but some conditions of the standstill agreement under consideration were not acceptable. Goldman Sachs had taken a good look at the matter and, according to Rod Stewart, came to the conclusion: “The first cut is the cheapest,” the FT quotes another banker.
Wells Fargo, who on Monday sold 18 million shares of Viacom CBS valued at more than $ 800 million and other shares valued at $ 1.3 billion, apparently also suffered.
What probably broke Archegos’ neck was the capital increase by Viacom CBS, which the company announced a week ago and which caused the share price to drop by 50 percent. The banks were worried before that, but the slide in the share price of the media company’s shares was probably the icing on the cake. Interestingly enough, the capital increase is being carried out by Morgan Stanley.
In the meantime Archegos has also spoken out, but not much to say. It is a challenging time for the Family Office, its partners and employees, quoted the Bloomberg news agency in an email from company spokeswoman Karen Kessler. All plans would be discussed, while Archegos founder and boss Bill Hwang and the team determined the best way out of the crisis.