Bill Hwang, founder of Tiger Asia Management LLC, is leaving federal court in Newark, New Jersey, USA, on Wednesday, December 12, 2012.
Emile Warnsteker | Bloomberg | Getty Images
Morgan Stanley posted an instant result for the first quarter, but a single brokerage client cost the business nearly $ 1 billion.
The bank had a loss of $ 644 million from a ‘credit event’ for the customer, as well as $ 267 million in related trading losses, the bank in New York said Friday that earnings exceeded expectations for the quarter.
According to a person with direct knowledge of the case, the client was Bill Hwang’s Archegos, adding that the bank no longer had exposure to the collapse of the fund.
During his scheduled call with analysts to discuss the quarter, Morgan Stanley CEO James Gorman confirmed that the client is Archegos and said the fund owed him $ 644 million after the collapse at the end of March.
“We have liquidated some very large positions per single stock through a series of block sales that peaked on Sunday night, March 28,” Gorman said. “This resulted in a net loss of $ 644 million, which represents the amount the customer owes us under the transactions he did not pay us.”
He added: “Next, we made a management decision to risk the remaining smaller long and short positions altogether,” Gorman said. “We have decided that we will run out of risk as quickly as possible, and thus suffered an increasing loss of $ 267 million. I consider the decision essential and money is being spent.”
At least part of the Archegos loss was due to the fact that Morgan Stanley was an underwriter of ViacomCBS shares last week, and it held a block of the company’s share until Sunday, causing the bank would sell later. than others, Gorman said.
Later, an analyst asked Gorman if the episode would change their approach to risk management in the primary brokerage firm.
“I think we will definitely look very closely at family office relationships where they are very concentrated and you have several brokers and honestly, the transparency and lack of disclosure regarding the institutions differs only from the hedge fund institutions,” Gorman said. “It’s something I’m sure the SEC is going to look at and it’s probably good for the whole industry.”
With the help of CNN’s Dawn Giel.