Archegos Capital prepares for insolvency proceedings

Karthik Subramanian

Archegos Capital, the troubled capital management firm, is preparing for insolvency proceedings as banks that handled its funds are trying to recoup their losses from it.

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The firm, which is supposed to be the family office of former Tiger Asia manager Bill Hwang, defaulted on payments for its margin calls leading to huge losses for the banks that handled its trades. The situation came about due to the big drop in the share value of ViacomCBS.

The capital management company had a lot of exposure to ViacomCBS and as its share price started falling, the banks demanded more and more collateral from Archegos Capital to cover the positions. The firm was not able to top up its account due to a lack of funds and this led to margin calls. It was one of the most shocking events of 2021 on the Wall Street.

Various banks around the world are expected to have lost around $10 billion due to this and this includes banks like Credit Suisse, Nomura Holdings and Morgan Stanley. As these banks demand the money back, Archegos is looking to find other legal options available to it to see how much damages are likely to be claimed and how these can be claimed.

Questions abound as to why the firm was given such a long rope by the banks and why they did not seek to close the trade positions at the first hint of a loss. It is only due to the fact that these banks chose to wait in the hope that the firm would return back the money that the losses began to pile up and crucial time was lost waiting for funds that never came in from the firm.

It is also to be noted that retail traders are seldom given this liberty and at the end of the day, it is these traders who are left holding the bag. Their accounts get closed at the first hint of trouble and these losses suffered by the various banks also need to be paid for, in one way or the other, by the retail traders and investors.

The lessons learned from the market crash in 2008 seem to have been conveniently forgotten and it is generally felt that the regulators like the SEC need to crack their whip in such situations so that the banks do not cross the line and are held to account. It remains to be seen what kind of action is going to be taken by the regulators and the fallout is likely to be closely monitored by the traders and the investors.

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