Archegos set for insolvency as it braces for legal claims from banks
Archegos is reportedly planning to file for insolvency as banks seek to recoup their losses after the firm failed to meet margin calls.
The collapse of the family office, run by former Tiger Asia manager Bill Hwang, in March saw its brokers take a $10bn hit.
Nomura posted its biggest quarterly loss in over a decade as a result of its dealings with the firm, while UBS reported a surprise $774m hit last week.
Credit Suisse, Morgan Stanley, MUFG and Mizuoho all reported losses from the fallout after allowing Archegos to make bets on stocks.
When Archegos defaulted on margin calls – when a broker demands more money to be added to an account to cover potential losses – the banks offloaded huge stakes in nine companies at a discount.
Now Archegos has hired restructuring advisers to assess the possibility of legal claims from some of the banks and plans to possibly wind down its operations, the Financial Times reported.
A number of the banks are preparing to issue “letters of demand”, which will demand payment ahead of launching any legal proceedings.
“There is a question mark over how much the banks are entitled to claim and whether the fund has any recourse for the way the banks behaved when they dumped the stocks. It will come down to what indemnity was in the loan and swap agreements,” one person told the FT.
“They have all lawyered up and threatened lawsuits”.
The newspaper also reported lenders are investigating whether Hwang’s family office withheld or provided wrong information about the scale of its borrowing from other brokers. UBS is reportedly among the banks examining whether it was “fraudulently induced” to do business with Hwang’s firm.