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The latest Bill Hwang scandal has ViacomCBS and Discovery (among other stocks) plunging, due in part by Hwang’s Archegos Capital.
Much like the GameStop storm that shook the world, a similar explosion managed to hit the markets over the weekend, crashing the stocks of media titans. Wall Street banks like Morgan Stanley and Goldman Sachs Group Inc. were forced to liquidate more than $20 billion of holdings for Hwang’s New York-based Archegos Capital Management firm, sending shockwaves through the market.
Bill Hwang was a titan among men, as the hot-shot disciple of hedge-fund legend Julian Robertson. Hwang branched off from Robertson’s Tiger Management and preceded to run his Tiger Asia Management, which was backed by his former boss. The firm quickly rose to a multi-billion-dollar vantage point, raking in huge returns. Thanks to a scandal involving insider trading, which Hwang openly admitted to in court, the hedge fund closed in 2012. Since then, Hwang rebounded off the scandal and opened the family office, Archegos.
Archegos is the center of the latest controversy involving Hwang, as the firm was using borrowed money to make outsized bets that propped up media stocks, according to CNN. Extremely low interest rates from the Federal Reserve made it all possible, but the potential disaster wasn’t clear until everything began to crash on Friday.
Investors with a large stake in a company, (more than 5%), are required to report their holdings with the SEC, usually to prevent irreparable damage to the markets. Unfortunately, Archegos reportedly used total return swaps, derivatives that mask some of the larger investment positions. Which, in turn, helped mask their disclosure filings. Then, in a complex turn of events, the wolf huffed and puffed, and blew the house down. In this case, the house was skyrocketing the stock prices of media giants.
On March 24, ViacomCBS Inc had stock prices ranging from $85-$100 a share (common stock and preferred stock respectively), and according to Yahoo! Finance, it announced that it would grant underwriters a 30-day option to purchase additional 3 million common stocks and 1.5 million preferred stocks. Since then, the company’s stocks had nearly tripled on the year, but the share sale might have been too much for the market to handle, and down came the price.
If things couldn’t get worse, Archegos faced margin calls from its lenders and couldn’t pay up, leading to the brokers being able to step in and dump the shares on the client’s behalf- which they did. Goldman Sachs was one of Archegos’ lenders to seize and sell stocks, and the liquidation drove down the various investments that Archegos had, including ViacomCBS and Discover. The total losses were about 25% apiece, and Archegos was the prime suspect.
As reported by CNBC, the Tokyo headquartered, Nomura issued a trading update that cited significant losses estimated at $2 billion. Its shares fell nearly 14%, explaining the cause to be transactions with an unnamed U.S. client, which many speculate to be Archegos. Goldman Sachs, Morgan Stanley, and Deutsche Bank were among the other Wall Street banks to facilitate the liquidation of Archegos’ holdings.
As of now, the fallout is still being registered, much like the damage done by the Georgia tornadoes last week. There is no telling how bad this financial catastrophe could be, or how deep the scandal goes. Hopefully, it isn’t as detrimental as the GameStop bump-up early this year, but as of now, things aren’t looking promising.