Archegos prepares for insolvency as banks seek compensation for $10bn losses

Archegos Capital is preparing for insolvency, triggered by banks’ attempts to recoup some of the $10bn they lost on its soured bets in March.

The family office run by Bill Hwang has hired restructuring advisers to assess potential legal claims from banks and to plan for a possible winding down of its operations, according to two people familiar with the matter.

Six banks that acted as prime brokers to Archegos — Credit Suisse, Nomura, Morgan Stanley, UBS, MUFG and Mizuho — lost more than $10bn when they were forced to liquidate the family office’s positions in US-listed companies such as ViacomCBS after it failed to meet margin calls.

A number of them are preparing to issue “letters of demand” to the firm — a request for payment ahead of launching a legal claim — according to three people close to the process. They first want to finish closing out the Archegos positions; last week Credit Suisse said it had sold 97 per cent of the related securities.

Lenders are also investigating whether Hwang’s family office withheld or provided incorrect information about the scale of its borrowing from other prime brokers.

UBS is among the banks examining whether it was “fraudulently induced” to do business with Archegos, according to one person close to the matter.

Archegos, Credit Suisse, Nomura, Morgan Stanley and UBS declined to comment.

The banks had allowed Archegos to make highly levered bets on stocks. When the firm defaulted on margin calls — instructions to add more collateral to its broker accounts — the banks offloaded its large stakes in nine companies at a discount, resulting in some of the worst losses on Wall Street in more than a decade.

The incident has led to recriminations at the banks, which offered as much as $50bn of leverage to Archegos, and prompted investigations about their risk controls from regulators in the US, UK and Switzerland. Senior executives at Credit Suisse and Nomura, which lost a combined $8.3bn, have been fired or suspended.

US lawmakers have also asked banks to explain why they extended such large credit lines to Hwang, whose former hedge fund Tiger Asia Management was charged with insider trading by US and Hong Kong regulators in 2012 and 2014.

A person close to the situation said: “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.”

“They have all lawyered up and threatened lawsuits,” the person added. “The banks are all going to claim as much as they possibly can.”

Archegos has hired restructuring and insolvency advisers, as well as lawyers and public relations advisers since the meltdown in March wiped out the bulk of its $10bn assets under management. Archegos and Hwang are being advised by US law firms King & Spalding, Kellogg Hansen and Gibbons, as well as PR veteran Michael Sitrick.

Additional reporting by Eric Platt in New York