Hedge fund failure slams Credit Suisse, Nomura and other banks - CNN

Nomura and Credit Suisse said Monday that earnings might take "significant" hits after a client of their broking services defaulted on margin calls last week, roiling Wall Street. Shares in both banks plunged on Monday, wiping billions of dollars off their market capitalization.

A margin call by a broker requires a client to add funds to its account if the value drops below an agreed level. If it can't, the broker can dump the client's shares and liquidate its holdings to makeup the shortfall.

Neither bank identified the client that defaulted on the margin calls but Bloomberg and other media outlets said New York-based Archegos Capital was at the center of the storm. The investment firm was founded by Bill Hwang, a former Tiger Asia trader and protégé of hedge fund pioneer Julian Robertson.

Archegos could not be reached for comment on Monday and its website could not be accessed.

US media stocks hit

On its LinkedIn profile page, Archegos Capital Management says it is a family investment office specializing in public equities primarily in the United States, China, Japan and Korea, employing "a disciplined, research-driven approach to fundamental stock selection, while taking a multi-year approach to investing."

According to Bloomberg, which cited anonymous sources, ViacomCBS (VIACA) and Discovery (DISCA) were among the companies hit by the forced liquidation of Hwang's positions: Shares of each plunged more than 25% on Friday.

Credit Suisse (CS) said in a statement that a "significant US-based hedge fund" failed to meet its margin commitments. It said the default affected "certain other banks" as well, though did not name them.

"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," Credit Suisse said.

"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 bank added.

Nomura Holding (NMR), said its losses could be as much as $2 billion, attributing the hit to "transactions with a US client." Asked for further detail, the company declined to comment to CNN Business.

"Nomura is currently evaluating the extent of the possible loss and the impact it could have on its consolidated financial results," the company said in a statement, adding that its estimate was calculated based on market prices that day.

"Given that this is a net rather than gross exposure, we believe it almost certainly means Nomura will recognize a bottom-line loss in its fiscal fourth quarter ending March 31," Michael Makdad, a senior equity analyst at Morningstar in Tokyo, said in a note on Monday.

Nomura's shares plunged more than 16% in Tokyo, the stock's worst day in at least 20 years. The move wiped more than $3 billion off its market value. Credit Suisse shares fell by about 9% in early trading, also wiping about $3 billion off its market cap.

— Charles Riley, Michelle Toh and Laura He contributed to this article.

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