Bill Hwang made purchases and moved fabulous amounts with money borrowed from banks and now no one knows how big the loss will be
Cris Faga / Estadão ContentJapanese bank Mitsubishi announced it lost $ 300 million because of Bill Hwang
Until Monday, almost nobody financial markets he had heard of Bill Hwang, but in recent days, analysts and investors were shocked to discover that he was, in theory, one of the richest people on the planet. And also the investor who lost $ 30 billion in a single day. It is the value of the shares sold at once by large foreign banks, such as Morgan Stanley, Deutsche Bank, Credit Suisse and others, last week, to cover the risk of the operations of Hwang, which, it is now known, is a mega-investor that moved fabulous amounts with borrowed money.
He owns a company, Archegos, which manages $ 10 billion of his personal fortune. Operating for himself, he was off the radar of the market and regulators. But not from the brokers of large banks in the USA, Europe e Japan, which, in exchange for interest and commissions, guaranteed loans for large investors to make more purchases. With derivatives and other financial instruments, it bought large stakes in companies using increasingly large amounts from banks’ margin accounts. Stocks, with a sudden high demand, ended up rising. Transactions that often confused other investors, who saw and could not explain the strong rise in stocks even with the market falling. But, leveraging – operating on borrowed money – in many times the value of his own assets, Hwang began to worry about the institutions that finance his investments.
Last Friday, big sales knocked down several stocks on the American stock exchanges. Papers such as Viacom CBS and Discovery fell 27%, the worst falls since the housing bubble crisis in 2008. Given the risk that Archegos would not be able to repay loans, banks used their right to sell assets, even against customer’s will to cover the balance of the accounts. It is a normal market process. Only, selling US $ 30 billion at once, they caused an earthquake, dropping prices while trying to pass the papers cheaper and cheaper. Now the banks involved count losses and damage to balance sheets. On Monday, the shares of Nomura, Japan’s second largest bank, fell 16%. Yesterday, its biggest rival, Mitsubishi, announced that it lost $ 300 million because of Bill Hwang.
Nobody really knows how big the damage will be. It may have been tens or even hundreds of billions of dollars. The prospect of new giant paper sales is scary. And to spice things up, it all came eight years after the investor was fined $ 4.4 million by the US regulator for using inside information when trading Chinese shares. With such a track record, it was expected to be banned from the market. He received tens of billions of dollars in credit. And now everyone wonders how it happened.
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