TYLER DURDEN, 07 April 2021
One week ago, in our initial take on the biggest hedge fund collapse since LTCM, we explained that – in our view – the catalyst for the failure of the Archegos hedge fund, which had as much as 10x leverage allowing it to hold some $100BN in positions, was Morgan Stanley and Goldman breaking ranks with their fellow prime brokers, and sparking the biggest margin call since Lehman and AIG.
Turns out we were right.
In the most detailed account yet of what happened in the fateful 24 hours between March 25 and 26, when many – but not all – of Archegos’ big prime brokers starting dumping blocks of Bill Hwang’s margined stock, CNBC’s Hugh Son writes that “the night before the Archegos Capital story burst into public view late last month, the fund’s biggest prime broker quietly unloaded some of its risky positions to hedge funds, people with knowledge of the trades told CNBC.”
That prime broker was Morgan Stanley and to avoid what could have been up to $10 billion in losses, the bank sold about $5 billion in shares from Archegos’ holdings in media and Chinese tech names to a small group of hedge funds late Thursday, March 25, roughly around the time a last ditch negotiation between prime brokers including Credit Suisse failed to reach a compromise to avoid a firesale.