How an Unknown Hedge Fund is Causing Disturbance in the Financial Sector?

Archegos Capital Management, a hedge fund in the United States, is causing concerns in the financial sectors, after Credit Suisse and Nomura warned on Monday of significant negative impacts on their quarterly financial results due to exiting positions with the aforementioned fund.

Credit Suisse nor Nomura did not specify the fund, however, many media reports identified the hedge fund, which was recently forced to liquidate positions causing increasing selling pressures.

The Switzerland-based global wealth manager and investment bank revealed that is might be too early to quantify the exact size of the loss resulting from this exit, but noted that “it could be highly significant and material to [the bank’s] first-quarter results, notwithstanding the positive trends announced in our trading statement earlier this month.”

Bank of America has downgraded its stock recommendation on Credit Suisse to neutral, lowering the expectations for the bank’s annual profits and dividends this year by more than $500 million.

Likewise, Nomura, the biggest investment bank in Japan also revealed that it is evaluating its losses due to the exit, which are estimated at about $2 billion, according to CNBC.

The sage has been compared with that of GameStop, as the hedge fund, Archegos, was relatively unknown; however it did not stop it from obtaining large finances from major banks

The extreme leverage and increasing exposure from leading banks is now causing across the global financial sector.

In the same way, Archegos Capital was reportedly using the huge sums of money it was borrowing with low-interest rates to place huge bets on some media stocks, led by ViacomCBS, according to CNN.

A form of derivatives known as total return swaps might have been key in these bets, the report noted.

The ViacomCBS stock, which recently tripled in value since the beginning of the year, closed lower by 6.7% on Monday, expanding its losses over the past five sessions to 55%.

ViacomCBS was reportedly planning to collect $3 billion from selling shares after the recent surges in their stock price, before the recent decline due to excessive selling pressures and the forced liquidation.

Recently, another hedge fund, named Melvin Capital Management, almost collapsed in January due to its huge bets against GameStop, which were faced by extreme demand from retail investors using the Reddit social media platform, which led to historic surges in the company’s stock. This led Melvin Capital to achieve huge losses before agreeing on a bailout of $2.8 billion.