Archegos and the case of Nomura. Will Bill Hwang Cost Disruption for Credit Suisse?

 Credit Suisse

Credit Suisse can’t rest after the Greensill saga. The new story has just hit the headlines, as Bloomberg reported about the Nomura statement. The Japanese securities company claimed to have a $2 billion claim against one client from the U.S.

They of course had been unnamed, but it didn’t take long for people accustomed to the case to say that it was Archegos. As a result, Nomura’s shares started to fall down (as much as 16% in one day).

Also, Credit Suisse got hit by the controversy, with the shares tumbling as well. Another 14% fall is a disaster for the bank still struggling to recover from the damages of the Greensill scandal. For now, it looks like the pair (Credit Suisse and Nomura) will be the parties most influenced by the disruption.

 

 Bill Hwang – the person behind all of this

Hwang has never been known amongst the elites of Wall Street, as he was always engaged with projects somewhere else (like Fuller Theology Seminary for example).

Julian Robertson recalls him as the best salesman Tiger Empire ever had. Hwang introduced them to Korea and has later become an expert in Asian markets. Tiger Management got shut down, but the cooperation of Hwang and Roberson didn’t stop. Hwang started his own firm, and Robertson seeded it with $25 million.

And while his impressive (or ‘meteoric’, as Robertson called it) rise seemed to be the perfect scenario, the series of controversies and scandals hit. At first, Tiger Asia Partners (where he was heavily involved), was fined 67.7 million yen by the Japanese SESC (Securities and Exchange Commission).

The following year Hwang received a 4-year-long ban from Hong Kong trading. This was the result of his alleged use of insider information in trading the bank stocks from China. Allegedly, Tiger Asia (at the time under Hwang) shorted the Bank of China Ltd stock and made a profit of HK$9.1 million.

And while the Market Misconduct Tribunal investigated Hwang’s Tiger Asia Management, he changed his fund’s name to Archegos. This smart move helped Hwang a bit, as not everyone knew about it.

 

The Nomura’s Archegos exposure

In case you didn’t know, Nomura is a giant amongst securities companies. This Japanese firm has its offices all across the globe. In 2008, they bought the investment arm of Lehman Europe which allowed them to clear their debts, and February 2020 finally brought serious profits for them.

Kenji Teshima has shared that India and Australia contribute to 15 percent (Australia) and 20 percent (India) of the revenue of Asian investment banking (outside of Japan). And China, which is the biggest contributor on the continent takes even up to 40 percent of the revenue. The raising of Nomura’s exposure to Archegos much to do with the way Hwang’s firm was involved with the Chinese equities.

For Nomura, it must be hard, as they had a rather bumper 2020, and this controversy could potentially delay the recovery of the institution. Kentaro Okuda, the CEO of the company does everything in his power to strengthen his firm. He was forced to cancel the insurance of their debt, and this deal would have been worth $3.25 billion.

Difficulties in China

Even before that, the Chinese market was struggling a bit. J.P. Morgan and Morgan Stanley’s $3billion ViacomCBS’s stock offering fell apart. And the stock was of course dumped when the offering got withdrawn.

According to one unnamed trader, Morgan Stanley, Goldman Sachs, Deutsche Bank, and Credit Suisse would all put pressure on Hwang and his company to liquidate Archegos China internet names with the use of unregistered trades. It would be happening during the recent drop of Chinese stocks.

Baidu, Vipshop, and Tencent were hit the hardest, all dropped massively (18% Baidu, 31% Vipshop, and 33% Tencent). We can’t be certain of how much of it was actually caused by the Archegos disruption, but it surely had some influence.

To follow on this fascinating story, and read Andy Samu’s comprehensive analysis, read his Disruption Banking piece: https://disruptionbanking.com/2021/03/29/how-much-disruption-will-bill-hwangs-archegos-cause-nomura-and-credit-suisse/.

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