Invoice Hwang in 2012
Emile Warnsteker | Bloomberg | Getty Photos
Morgan Stanley posted blockbuster outcomes for the primary quarter, however a single prime brokerage shopper price the agency almost $1 billion.
In its earnings outcomes, Morgan Stanley mentioned Friday it had a $644 million loss from a “credit score occasion” for that shopper, in addition to $267 million in associated buying and selling losses.
That shopper was Invoice Hwang’s Archegos, Morgan Stanley CEO James Gorman mentioned throughout a convention name with analysts, confirming what an individual with data of the scenario instructed CNBC earlier.
Whereas Morgan Stanley was the largest prime dealer to Archegos, different banks suffered bigger losses. Credit score Suisse, which CNBC has reported was the No. 2 dealer to Archegos, took a $4.7 billion hit to unwind the shedding bets and shuffled prime managers due to the meltdown. Nomura mentioned it may face $2 billion in losses.
Throughout his scheduled name with analysts to debate the quarter, Gorman mentioned Archegos owed it $644 million after its meltdown in late March.
“We liquidated some very giant single inventory positions by a collection of block gross sales culminating on Sunday evening, March 28,” Gorman mentioned. “That resulted in a internet lack of $644 million which represents the quantity the shopper owed us underneath the transactions that they did not pay us.”
He added: “Subsequently, we made a administration choice to utterly de-risk the remaining smaller lengthy and brief positions,” Gorman mentioned. “We determined we might be out of the chance as quickly as attainable, and in so doing, incurred an incremental lack of $267 million. I regard that call as mandatory and cash properly spent.”
Morgan Stanley could have been misled by the household workplace, CFO Jon Pruzan mentioned through the name. The financial institution held collateral for Archegos primarily based on info that turned out to be unfaithful, he mentioned.
Archegos representatives couldn’t instantly be situated for remark. Its earlier communications agency mentioned it not represented the household workplace.
At the very least a part of the Archegos loss was pushed by the truth that Morgan Stanley had been an underwriter on ViacomCBS shares the earlier week, so it held off promoting a block of the corporate’s inventory till Sunday, which brought on the financial institution to be later in promoting than others, Gorman mentioned.
Throughout the name, an analyst requested Gorman if the episode would change the agency’s method to threat administration within the prime brokerage enterprise.
“I feel we’ll actually be wanting arduous at household office-type relationships the place they’re very concentrated and you’ve got a number of prime brokers and albeit, the transparency and lack of disclosure referring to these establishments is simply totally different” from hedge funds, Gorman mentioned. “That is one thing I am certain the SEC goes to be and that is most likely good for the entire trade.”
— CNBC’s Daybreak Giel contributed to this report.