Credit Suisse, Nomura slump after warnings related to Archegos fire sale

Credit Suisse and Nomura have both warned of "significant" losses, sending their shares sharply lower, after a fire sale by their client Archegos Capital Management.

The Swiss and Japanese banks provide prime brokerage services to the fund, which last week failed to meet its margin calls, prompting the unwinding of its assets. Prime brokers lend funds cash and securities, as well as processing their trades.

In a statement issued on Monday, Credit Suisse said: "A significant US-based hedge fund defaulted on margin calls made last week by Credit Suisse and certain other banks. Following the failure of the fund to meet these margin commitments, Credit Suisse and a number of other banks are in the process of exiting these positions.

"While at this time it is premature to quantify the exact size of the loss resulting from this exit, it could be highly significant and material to our first-quarter results."

The Financial Times, quoting two unnamed sources close to the bank, said the expected loss was likely to be between $3bn and $4bn. Credit Suisse’s net income for the 2020 full year was $2.9bn.

Nomura said it was continuing to evaluate the extent of the possible loss - which it warned could subject its US subsidiary to "a significant loss" - and the impact it could have on its results. But it added: "The estimate amount of the claim against the client is approximately $2bn, based on market prices on 26 March."

Shares in both banks fell heavily, with Nomura losing 16% and Credit Suisse down 13% by 1030 BST.

Markets first suspected there may be a problem on Friday, when a number of large block trades - which caused sharp falls in the stocks in a handful of companies - were eventually linked to Archegos. Around $20bn of Chinese and US stocks are understood to have been sold off. Archegos, which was founded by Taiwan’s Bill Hwang, has yet to comment.

Neil Wilson, chief market analyst at Markets.com, said: "Bubbles everywhere are a sign of dysfunction and stress, but a fund blowing up is not itself a systemic risk, more of questionable internal risk management. As massive fire sale of some individual stocks last week had traders talking about who’d take the hit, as shares in ViacomCBS and Discovery plunged 27% on Friday alongside some big Chinese tech stocks."

Connor Campbell, financial analyst at Spreadex, said: "It is unclear whether Archegos is done with its fire sales and if it isn’t, how much it has left to unload. That also raises questions over the wider ramifications of the hedge fund’s troubles, and which companies will be the next to announce they have been stung."