Morgan Stanley lost $ 911 million when Archegos Capital Management exploded last month, affecting a record quarter for the Wall Street firm.
The New York bank made huge profits from the euphoric market conditions of early 2021. But the record performance in many of its businesses was offset by credit and trading losses that Morgan Stanley booked after a fire sale of more than $ 30 billion worth of shares Archegos, the family office run by Bill Hwang, former Tiger manager.
Archegos used billions of dollars he borrowed from banks to raise large stakes in ViacomCBS Inc., Discovery Inc. and acquire a handful of other media and technology companies. To increase its positions, the fund entered into derivative contracts with various banks, an arrangement that hid the size of Archegos’ total portfolio for each lender. When some of his possessions lost value in March, Archegos was asked to place additional collateral he did not have, which led banks to use and sell Archegos’ assets at low prices.
More than two-thirds of Morgan Stanley’s losses on Archegos were the result of the collateral the bank sold at lower values after Archegos was unable to repay its margin loans. The rest of the Archegos losses came when the bank closed smaller positions the fund held that were not subject to margin calls, CEO James Gorman said at a conference with analysts on Friday.
Although these positions were not particularly problematic for the bank, Mr. Gorman said he chose not to take the risk that it would sour later and lead to greater losses. “I consider the decision necessary and that money is being spent well,” he said. “We did not want this thing to continue.”