In the previous article, I told you that on Friday, March 26th, Goldman Sachs and Morgan Stanley sold shares for $19 billion. Also, I enumerated the companies that had their quotations drop more than others due to those package trades.
I formulated some important questions. For example, what will be the consequences for large fiscal entities that have something to do with what happened, and why the SEC allowed this at all? Today I'll try to give you answers.
Who dropped the market on March 26th?
Bill Hwang's family trust Archegos Capital Management informed its brokers of the inability to comply with its credit obligations. The brokers, in their turn, got anxious to get their money back and initiated large-scale liquidation of Archegos's assets.
According to the Wall Street Journal, on the list of Archegos's brokers, there are such fiscal giants as Morgan Stanley, Goldman Sachs, Deutsche Bank, UBS Group AG, Wells Fargo, Credit Suisse, or Nomura.
According to Bloomberg, the authoritative entities named above very quickly sold the assets of Hwang's family trust for $20 billion. The WSJ gives even more impressive digits - $30 billion.
The SEC initiates an investigation
The actions of large banks and companies as well as their consequences attracted the attention of the US SEC (Securities and Exchange Commission). The regulator decided to puzzle out the reasons for Archegos's devaluation and check whether all the participants acted legally.
To get things clear, the SEC invited the representatives of Morgan Stanley, Goldman Sachs, Nomura, and Credit Suisse. Moreover, the SEC asked the FINRA (Financial Industry Regulatory Authority) for corresponding information.
As you remember, the FINRA is a private entity regulating OTC stock trading.
The investigation itself can drop the quotations even further. If the SEC finds any offense in the actions of traders who organized the avalanche, fines must be enormous. We cannot neglect the probability that the fall of the hedge fund had been plotted.Maksim Artyomov, RoboForex analyst and R Blog author
The stocks of which large fiscal companies got cheaper?
Analysts note that brokers that got in trouble after the Archegoss devaluation preferred to act on their own, showing zero coordination of actions. The banks and companies that had got rid of Hwang's assets in time were virtually unharmed.
On the contrary, the quotations of those who acted slowly on Friday headed down. The shares of Nomura Holdings (NYSE: NMR) from March 26th to 3oth (which means three trading sessions) declined by 16%, from $6.61 to $5.55.
The share price of Credit Suisse (NYSE: CS) those days dropped by 16.8% from $13.21 to $10.99; as for UBS Group AG (NYSE: UBS), its stock price fell by 2.9% from $16.06 to $15.6. According to Reuters, world banks might lose over $6 billion on this.
Some consequences were experienced by only a third of large banks that acted as the brokers of Archegos Capital Management. Morgan Stanley and Goldman Sachs shares lost almost nothing and are growing already.
The US SEC started an investigation, paying attention to the not-so-transparent financial instruments used by Hwang's trust for creating stock packages of large companies.
Trades are unlikely to be canceled by licensed might be called back. It's hard to predict how this will influence stock prices in the future but well try. If the trust stays afloat after the decline, banks might play their positions back. This is fair for not only Archegos Capital Management but also the media conglomerates as ViacomCBS, Discovery, Baidu, and Tencent Music.Maksim Artyomov, RoboForex analyst and R Blog author
What else to read about investment banks on R Blog?
- One Day After IPO: Coursera Shares Have Grown by 22%
- Morgan Stanley and Goldman Sachs: Friday Sale of Shares for $19 billion
- The Bank of America: Oil Prices Will Reach 100 USD per Barrel
- Why Is Oil Price Growing?