Goldman to fund meagre payouts to banks hammered by Archegos collapse

Banks that lost billions from the meltdown of Archegos Capital Management will get back as little as 5 cents on the dollar from its restructuring, with brokers such as Goldman Sachs funding the payouts using cash left in the family office’s trading accounts.

Global banks, including Credit Suisse and Morgan Stanley, that lost more than $10bn from the blow-up of Archegos, are expecting to recoup between 5 per cent and 20 per cent of their losses, according to people familiar with the matter.

Credit Suisse, the biggest casualty of the collapse, which left it facing more than $5bn of losses, could get back as little as $250mn.

The banks and restructuring advisers managing the unravelling of Archegos are nearing the end of a “workout” negotiation to agree how assets that belong to the family office will be distributed to the banks with claims against it, the people said.

It comes nearly two years after the investment firm run by former hedge fund manager Bill Hwang spectacularly imploded.

The fund had made tens of billions of dollars of bets on US and Chinese stocks by borrowing heavily from banks’ prime brokerage divisions, which had to be rapidly unwound when the value of the companies slumped and Archegos could not meet margin calls.

As Archegos’s positions collapsed, some of the banks acting as prime brokers liquidated collateral more quickly than others in order to avoid losses on their loans, and in some cases even left cash in the investment firm’s accounts.

The funds to repay creditors are largely coming from the banks such as Goldman Sachs that offloaded collateral and covered their loans.

Some of the cash left in those accounts is being returned to Archegos and will be distributed by its restructuring advisers to the banks that lost money, the people said. A pot of money has also been set aside for Archegos employees who were owed money by the firm as part of a deferred bonus scheme.

Deutsche Bank and Wells Fargo were also able to unwind their trades without incurring losses, people familiar with the matter said. Deutsche handed back about €20mn to Archegos after it sold out of its positions, said a person close to the bank.

These banks “did a better job of covering themselves than the others, had more restrictive lending or just got lucky”, said one person close to the matter. It meant they ended up with their Archegos trading accounts in the black when they terminated its swaps contracts, they added.

The meltdown of Archegos has led to market manipulation and fraud charges in the US for Hwang and three others who worked at Archegos.

It has also led to regulatory scrutiny on three continents and a reckoning at the banks that provided services to the firm.

Credit Suisse, Nomura, Morgan Stanley, UBS, MUFG and Mizuho were all exposed through their prime brokerage or trading divisions and lost $10bn when they liquidated their positions.

The banks have spent nearly a year in negotiations with Archegos as it attempts to realise and restructure its assets and liabilities. They are not expected to bring legal claims against the company as part of the restructuring effort in order to avoid a long and public court process and because the assets it can realise to repay them are so small, said one of the people.

Credit Suisse, UBS, Morgan Stanley, Goldman, Wells Fargo, Nomura and Deutsche Bank declined to comment.

Receiving any proceeds from the Archegos restructuring would be a boon for Credit Suisse, given the bank is in the middle of a costly restructuring and was forced to seek SFr4bn, or just over $4bn, from investors to pay for it.

“Frankly, anything above 1 per cent back would be amazing,” said one Credit Suisse executive.

A year ago, the bank said it had partially reduced its provisions on the loss by roughly $185mn “in respect of claims against Archegos”. Credit Suisse made just $17mn in revenue from Archegos in the year running up to its collapse, the Financial Times has reported.

Additional reporting by Stephen Morris and Eric Platt


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