Archegos fallout: Hedge fund fallout wipes over $9 bn from market value of Credit Suisse, Nomura

LONDON: Shares in Nomura and Credit Suisse fell further on Wednesday, with a collective $9 billion wiped off their market value so far this week as the banks braced for big losses from the blow-up of US-based hedge fund Archegos Capital.

Credit Suisse and Nomura were slower than rivals to cut their exposure to Archegos, a family office run by former Tiger Asia manager Bill Hwang. Global lenders that acted as brokers for Archegos may have to write down more $6 billion after the fund defaulted on payments, Reuters has reported.

Credit Suisse shares fell 4% on Wednesday, bringing this week’s decline to nearly 20%. Already under pressure from its exposure to failed supply chain finance firm Greensill, Credit Suisse’s plans to buy back shares and pay dividends this year could now be at risk, analysts said.

The bank’s market capitalisation has shrunk by five billion Swiss francs since Friday to 25.57 billion Swiss francs ($27.12 billion). Sources estimate Credit Suisse’s losses may total $5 billion but the bank declined to comment.

UBS analysts said “a lot of unanswered questions” remained, referring to Credit Suisse’s involvement first in Greensill and now the US-based hedge fund.

“Outflows? P&L impact? Insurance coverage? Quality of underlying assets? Litigation? Developments around involved partners? Reputational impact? Impact on strategy?” they wrote.

Meanwhile Nomura which has warned of a $2 billion hit from Archegos, fell a further 2.9% following a 0.8% fall on Japanese stock markets on Wednesday. Its market capitalisation has dropped from 2.3 trillion yen ($20.81 billion) to 1.88 trillion yen since Friday, Refinitiv data shows.

Ratings agencies added to the pressure as Moody’s slashed its outlook on Nomura to “negative”, citing potential deficiencies in its risk management process.

Fitch placed Nomura’s viability ratings on “negative watch” citing the potential for material losses arising from transactions with a US client in one of its US subsidiaries as well as questions over the adequacy of Nomura’s controls.

Meanwhile, in derivatives markets the cost of insuring exposure to Credit Suisse and Nomura rose.

Credit Suisse five-year credit defaults swaps (CDS) were trading at 73 basis points, the highest in a year and up 17 bps from Friday’s close, IHS Markit data showed.

That implies a cost of 73,000 Swiss francs a year to insure exposure to 10 million francs worth of Credit Suisse debt for a five-year period.

Nomura CDS were at 52 bps, versus 41 bps on Friday.