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COLLAPSE OF ARCHEGOS OPENS DOOR TO CONTROL OF FAMILY WEALTH FIRMS
- By The Financial District
- Apr 2, 2021
- 2 min read
Shares of the “old media” company shot up almost 300% in weeks, and small investors were abuzz with theories: It’s undervalued, like GameStop! It’s a takeover target! Inside Wall Street’s top trading firms, however, some executives had an idea of what caused the move. A trading whale -- Bill Hwang’s Archegos Capital Management -- was building a massive position in ViacomCBS Inc.
Banks around the world kept giving Hwang the leverage he needed to acquire more and more of the stock. What they couldn’t see, according to people with knowledge of the situation, was the full extent of his wagers.
He stealthily amassed $10 billion of Viacom and colossal positions in a few other companies, Erik Schatzker, Sridhar Natarajan and Sonali Basak reported for Bloomberg News on April 2, 2021. Now, banks are set to lose $10 billion as Archegos’ $100 billion family wealth got burned. In 2012, Hwang pleaded guilty to wire fraud as a manager of a hedge fund.
The holes in oversight and risk management are one reason banks were so vulnerable when the Viacom bet unraveled and Archegos imploded last week.
Underscoring the chaos of an escalating situation, representatives from Credit Suisse Group AG floated a suggestion as they met last week to confront the reality of such an exceptional margin call and consider ways to mitigate the damage: Maybe wait to see if his stocks recover? Viacom, some noted, seemed artificially low after its run-up past $100 just two days earlier.
Yet it was Hwang’s orders that had helped make Viacom the year’s best performer in the S&P 500, forcing benchmark-tracking investors and exchange-traded funds to buy as well.
Without him creating that momentum, Viacom and his other positions had little hope of rebounding. At several points during those exchanges, bankers implored Hwang to buy himself breathing room by selling some stocks and raising cash to post collateral. He wouldn’t budge, people who participated in the meetings said.
