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Nomura and Credit Suisse are facing billions of dollars in losses after a U.S. hedge fund, named by sources as Archegos Capital, defaulted on margin calls, putting investors on edge about who else might have been caught out.

Losses at Archegos, run by former Tiger Asia manager Bill Hwang, had triggered a fire sale of stocks on Friday, a source familiar with the matter said.

See also: Nomura and Credit Suisse warn of big losses after Archegos share dump

The S&P 500 was off 0.1%, paring losses seen in futures over night. The news has sparked fears that other lenders could be in the process of exiting these positions too. The S&P financials index was down 1.2% and the banks sub-index was off 1.7%.

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Here’s what some observers are saying:

CHRISTOPHER MARINAC, DIRECTOR OF RESEARCH, JANNEY MONTGOMERY SCOTT, ATLANTA

“This is an ideal excuse for any investor to take profits in financials.”

“Banks have done very well this first quarter.”

“The real question is whether this becomes a bigger systemic incident that lingers for several weeks.”

“The fundamentals for the banking industry are still really good.”

“If the banks have to take a loss on something, there should be plenty of earnings to handle it.”

“Their capital is also very strong.”

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EDWARD MOYA, SENIOR MARKET ANALYST AT OANDA

“It does seem like the Friday beatdown for Viacom CBS, Discovery, and many Chinese tech stocks is a one-off event. Undoubtedly the over leveraging done by Archegos Capital Management, run by former Tiger Asia manager Bill Hwang, will force every prime brokerage to review their books. When you look at the stocks that were incorrectly bet on, Wall Street must ponder if the V-shaped stock market recovery got out of hand.

“A US-based hedge fund defaulted on margin calls and while the reopening of the economy trade will continue, the path higher for US stocks will be complicated and filled with fresh risks. US stocks will likely finish the year much higher, but markets will remain on edge as hedge scrutiny will intensify.”

DENNIS DICK, HEAD OF MARKET STRUCTURE AND A PROPRIETARY TRADER, BRIGHT TRADING LLC, LAS VEGAS

“I think it spooked the market to a certain extent. But rumors are rumors - we don’t have confirmation on any of this and the Street always seems to find these rumors.”

“You still have this problem of where the money is supposed to go. Even when you get these pullbacks on worries about a hedge fund blowing up, people think of this as a buying opportunity across the board. People with the mentality to come in and buy the dip and I don’t know if that changes today.”

“You continue to see strength in the overall market. There is not fear of selling stocks all together, there’s just fear in pockets of the market.”

STEPHANIE LINK, CHIEF INVESTMENT STRATEGIST, HIGHTOWER ADVISORS, NEW JERSEY

“There has been a lot of activity in terms of a lot of trading, a lot of uncertainty. There’s a lot of skepticism out there in terms of where we are in the economy and the markets.”

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“And so, I’m not crazy about hearing some of this liquidity issues. A lot of the liquidity and persistent low interest rates is certainly fueling speculation in certain parts of the market.”

“What’s going on with the Reddit traders, GameStop and AMC Entertainment, that is definitely fueling some speculation. So if you were to ask me if the market is in a bubble - I do not think the market is in a bubble but I do think there are certain parts that are not healthy and I do worry a bit.”

“The good news, I would say maybe less on the hedge fund but more on the Reddit traders, is the stocks that they’re trafficking in aren’t big enough to make a really big difference to the overall market, but it is certainly something to watch.”

THOMAS HAYES, CHAIRMAN, MANAGING MEMBER, GREAT HILL CAPITAL LLC, NEW YORK

“It probably will be contained, but you might see aftershocks. As Buffett likes to say, ‘you never know who’s swimming naked until the tide goes out.’

“Bill Hwang is known as a bit of a cowboy. He runs a very concentrated, highly leveraged book. It looks like it may have been as high as 10:1 leverage.

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“The Viacom trade was brilliant. The stock was at all-time highs, it was completely over overvalued in the short term and they said ‘OK, let’s sell the stock.’ Smart cookie. That was the right thing to do. It was dilutive, an analyst downgraded it, the stock came down a little bit and that caused one of Archegos’ prime brokers to do a margin call and that gets around the Street pretty quick.

“(Hwang) had in his concentrated book quite a few U.S.-listed Chinese stocks. Like BIDU (Baidu Inc) like IQ (iQIYI Inc), like TME (Tencent Music Entertainment Group) and that’s worrisome because of what happened with China National Oil Co and China Mobile Ltd when they got delisted effectively overnight. The stocks dropped because people couldn’t get out of them.

“In the U.S. people are a little worried about the Holding Foreign Companies Accountable Act that was signed in December. While it seems they’ll have a couple years to comply or get delisted, things can trigger pre-eminent listings and the previous administration had warned larger pensions to get out of U.S.-Chinese listed stocks, so you don’t want to be caught holding the bag.

“It was a confluence of several events compounded by the recent sell-off and weakness in the tech sector, which most hedge funds are leveraged to. It’s likely a confined event but you never know going into quarter-end, weird stuff can happen with rebalancing, with funds that are maybe over leveraged. Maybe some of these funds want to take a number of these Chinese stocks off the book.”

RICK MECKLER, PARTNER, CHERRY LANE INVESTMENTS, A FAMILY INVESTMENT OFFICE IN NEW VERNON, NEW JERSEY

“It’s reflective of some of the excesses the market has seen over the last month with wild gyrations in some specific stocks without much explanation. This certainly explains the trading in VIAB and Discover and some of the Chinese issues. It’s a black eye for the industry because it suggests that the problems that they had over 10 years ago now, there still may not be a full handle on risk control when it comes to leveraged trading.”

“It’s effect on the broad market is probably pretty limited. It doesn’t change much about the economy or it doesn’t impact a vast majority of U.S. stocks. Initial reaction when I got the news this morning - the market was down but since it has recovered about half of that. My guess is that the financial sector will take a hit today but the impact on broader markets is going to be small.”

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“This seems like a pretty specific case. Most funds are subject to margin rules which wouldn’t allow for this. I don’t think the whole story has come out yet and I’m saying this without knowing what the problem was. The swap market has been problematic to the industry for a while. There has always been some fears of whether the counter parties can stand behind some of these (trades). But this seems pretty specific - the fund had no clients and it seemed to be using offshore financing techniques that are not used by a lot of funds. That said, you just don’t know who’s on the other side of all these traders and what other impacts are. But it’s hard to see this as being a problem for the industry as a whole. It will raise the idea that risk control is an important components of asset management and it may put emphasis again on having clients demand some look at risk control systems in some of their investments.”

“A bigger concern would be regulator who would want to understand how you get to the point of taking losses on these types of transactions and whether or not they can be destabilizing to the overall market. It could lead to increased regulation. But it does seem, for now, as a one-off event.”

MARK PACITTI, MANAGING DIRECTOR AND FOUNDER OF WOOZLE RESEARCH, LONDON

”Our analysis suggests that the Archegos Capital Management (ACM) fire sale could result in additional forced selling from other HF’s that have exposure to the same portfolio companies. We have reason to believe that other HF’s will be implementing more stringent risk parameters, tighter VAR restrictions, and increased stop-loss discipline as well as profit taking to fund highly exposed positions. While it’s hard to decipher which HF’s are most exposed, we do believe that the ($)20bn fire sale from ACM is perhaps the tip of the iceberg and that the sharp selloff in Chinese and US tickers has the potential to drive 2-3x that amount of volume in additional forced selling or HF positioning amounting to a potential and incremental 40-60bn in additional holdings that we believe might be next in line to be liquidated due to either reducing VAR and/or forced selling on stringent P&L requirements. We are also seeing a higher than usual correlation between tickers in covid-winnning sectors such as Technology names and many HF portfolio ‘hotels’ tickers are at risk of seeing a further decline on nothing more than internal risk parameters and positioning rather than fundamentals.”

SIMON CARLTON, CHIEF EXECUTIVE OFFICER, CARLTON JAMES GROUP, LONDON

“The Archegos events tell a story about one of the fundamental issue with the stock market and the intrinsic connection throughout. The self-fulfilling prophecy of these margin calls are yet another indication that we may see a double dip recession on the horizon as the pandemic lifts its hold on the global economy. Prepare for very bumpy ride over the next few years.”

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