The Cost Of Doing Business (With Archegos)

Archegos lives!

Vicariously, through losses logged by banks, I mean. UBS said Tuesday it expected to take an $861 million hit through the second quarter on positions tied to Bill Hwang’s historic implosion.

“The default by a US-based client of our prime brokerage business resulted in an impact on Q1 Group net profit,” the bank told investors. “The related loss was recognized within the Financing business in the Investment Bank, which provided prime brokerage services to the client, and arose as a result of closing out a significant portfolio of swaps following the default and the unwinding of related hedges,” UBS added, noting that the bank “has exited all remaining exposures.”

Like Morgan Stanley, UBS deemed the loss not significant enough to compel an announcement quantifying the damage ahead of earnings. Morgan, you’ll recall, took a $911 million hit on positions tied to Hwang.

Nomura, which did tip a sizable hit weeks prior to earnings, said Tuesday that its Archegos-related loss was around $2.3 billion in the three months through March 31. The bank also said it’s managed to unwind more than 97% of outstanding positions. To their credit, Nomura provided a handy slide (below) that walks you through what happened, using a “timeline of events.”

“We take the matter with the US client very seriously,” Nomura remarked. “We remain committed to enhancing our risk management framework as we continue to build our operating platform to deliver consistent earnings across our global franchise.”

According to sources who spoke to FT, the bank “indefinitely suspended Dougal Brech, the UK-based head of the prime broking unit that had nurtured Hwang as a client and who had formerly worked at Credit Suisse.” The total loss for Nomura could hit $2.9 billion, apparently.

Credit Suisse last week disclosed the scope of its losses on the Archegos blowup. The bank, which accounted for around half of losses logged at large firms in the wake of Hwang’s flameout, reported results just a day after Bloomberg revealed that its point salesman for Archegos ended up “overseeing risk-taking in the broader prime-brokerage unit.” The optics left something to be desired.

The simple figure (below) illustrates the scope (and global nature) of the losses.

“Without the Archegos collapse, said investors, Nomura’s rebound in 2020 would have been a dream start for Kentaro Okuda,” FT wrote, in a somewhat glib assessment.

As the slide (above) relates, the bank has conducted a full review of its prime brokerage business and can “confirm” that there are “no other similar transactions.”

On a media call following earnings, UBS CFO Kirt Gardner discussed an unrelated $300 million restructuring charge for Q2 tied to planned layoffs. He didn’t say how many people would be affected. The cuts, he noted, would be “across geographies.”