CNBC's Wilfred Frost reports from sources on the bank side of the Archegos Capital margin call story. For access to live and exclusive video from CNBC subscribe to CNBC PRO: https://cnb.cx/2NGeIvi
The woes that arose from Archegos Capital Management at the end of last week bled into Monday as a slew of big banks saw their share prices decline.
Here’s how the $20 billion blowup unfolded.
U.S. media stocks ViacomCBS and Discovery experienced severe selling pressure on Friday, with each losing more than 27%.
A few Chinese internet ADRs including Baidu, Tencent and Vipshop also suffered sell-offs of a similar magnitude last week.
ADRs are American depositary receipts, essentially a certificate that represents a share of a foreign stock and is traded on American stock exchanges.
The culprit for the massive selling was a forced liquidation of positions held by the multibillion-dollar family office Archegos, CNBC reported.
Archegos, founded by former Tiger Management equity analyst Bill Hwang, had built massive positions in these stocks through swaps, a type of derivative that investors trade over the counter or among themselves without having to disclose the holdings publicly.
These swaps usually involve higher-than-usual leverage.
These large, leveraged bets came under pressure after ViacomCBS’ $3 billion stock offering through Morgan Stanley and JPMorgan earlier in the week fell apart, which triggered broad selling in the name.
The initial weakness in ViacomCBS triggered a chain of events where the prime brokers rushed to exit the positions on Archegos’ behalf and resulted in a massive margin call. The hedge fund was forced to inject more cash to cover the losses, amassing a forced liquidation of more than $20 billion.
The sell-off in these names continued on Monday with ViacomCBS down more than 8%. Discovery was off by more than 3%.
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The woes that arose from Archegos Capital Management at the end of last week bled into Monday as a slew of big banks saw their share prices decline.
Here’s how the $20 billion blowup unfolded.
U.S. media stocks ViacomCBS and Discovery experienced severe selling pressure on Friday, with each losing more than 27%.
A few Chinese internet ADRs including Baidu, Tencent and Vipshop also suffered sell-offs of a similar magnitude last week.
ADRs are American depositary receipts, essentially a certificate that represents a share of a foreign stock and is traded on American stock exchanges.
The culprit for the massive selling was a forced liquidation of positions held by the multibillion-dollar family office Archegos, CNBC reported.
Archegos, founded by former Tiger Management equity analyst Bill Hwang, had built massive positions in these stocks through swaps, a type of derivative that investors trade over the counter or among themselves without having to disclose the holdings publicly.
These swaps usually involve higher-than-usual leverage.
These large, leveraged bets came under pressure after ViacomCBS’ $3 billion stock offering through Morgan Stanley and JPMorgan earlier in the week fell apart, which triggered broad selling in the name.
The initial weakness in ViacomCBS triggered a chain of events where the prime brokers rushed to exit the positions on Archegos’ behalf and resulted in a massive margin call. The hedge fund was forced to inject more cash to cover the losses, amassing a forced liquidation of more than $20 billion.
The sell-off in these names continued on Monday with ViacomCBS down more than 8%. Discovery was off by more than 3%.
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Turn to CNBC TV for the latest stock market news and analysis. From market futures to live price updates CNBC is the leader in business news worldwide.
The News with Shepard Smith is CNBC’s daily news podcast providing deep, non-partisan coverage and perspective on the day’s most important stories. Available to listen by 8:30pm ET / 5:30pm PT daily beginning September 30: https://www.cnbc.com/2020/09/29/the-news-with-shepard-smith-podcast.html?__source=youtube%7Cshepsmith%7Cpodcast
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