Morgan Stanley building

ARCHEGOS FOLLOW-UP: Morgan Stanley Dumped $5 Billion to Escape Massive Losses

Last week, we wrote an important article on Archegos Capital Management and the margin call that resulted in billions of dollars in losses for the hedge fund’s lenders. This article serves as an update after a recent CNBC article depicts Morgan Stanley’s actions throughout the incident.

Recap

As we wrote in last week’s article, Archegos was recently faced with a margin call from its lenders, prompting the hedge fund to default on its payments. Following Archegos’ default, major lenders such as Credit Suisse and Nomura face billions of dollars in losses.

Archegos held “large and leveraged bets in U.S. media stocks ViacomCBS and Discovery” as well as several Chinese technology stocks. ViacomCBS was in the process of raising an additional $3 billion in a new stock offering, but a deal was not reached. Altogether, these events led to a major decline in the stock of more than 50% within just one week.

Stock Selloff

CNBC reportedly spoke with multiple anonymous sources that were familiar with the incident. According to this week’s CNBC article on the matter, Morgan Stanley sold around $5 billion in stock that Archegos held as part of their leveraged bets to several small hedge funds. This sale occurred the night of Thursday, March 25, which was just before the floodgates opened for tens of billions more in sales.

Although Morgan Stanley had Archegos’ consent to look for buyers, Morgan Stanley did not tell the buyers that Archegos’ positions would continue to unwind the following day. This led to a selloff of tens of billions of dollars in Archegos’ positions, which were held by a number of financial institutions.

Buyers Left in the Dark

Hedge funds that bought the stock from Morgan Stanley later learned that the firm in question was Archegos. Morgan Stanley did not tell its buyers that Archegos was the client for which Morgan Stanley was unloading the stock; instead, Archegos was simply referred to as an “unnamed client.”

Buyers also did not know that Archegos, the “unnamed client,” and its lenders had been planning to exit their positions in their highly leveraged positions. Thus, the hedge funds claim that “at least some bankers at Morgan Stanley knew the extent of the selling that was likely and that [Archegos] was unlikely to be saved.”

Future Developments

This is a new story that will likely unfold in greater detail within the coming weeks. Thus, we will continue to update you on further developments as they emerge.