Goldman, Morgan Stanley limit losses with fast sale of Archegos Assets

The decision to sell early helped insulate financial giants from losses that have hit others

Goldman Sachs Group Inc. and Morgan Stanley were quick to move large blocks of assets before other large banks that traded with Archegos Capital Management, as the scale of the hedge fund’s losses became apparent, according to people with knowledge of the transactions. The strategy helped limit the U.S. firms’ losses in last week’s epic stock liquidation, they said.

Ticker Security Last Change Change %
GSX n.a. n.a. n.a. n.a.
VIPS VIPSHOP HOLDINGS LTD. 15.04 -0.28 -1.83%

Losses at Archegos, run by former Tiger Asia manager Bill Hwang, have triggered the liquidation in excess of $30 billion in value. Banks were continuing to sell blocks of stocks linked to Archegos Monday, traders said.

“This is a challenging time for the family office of Archegos Capital Management, our partners and employees. All plans are being discussed as Hwang and the team determine the best path forward,” a company spokeswoman said in a statement Monday evening.


Archegos took big, concentrated positions in companies and held some positions in a mix of stock and swaps. Swaps are a common arrangement in which a trader gets access to the returns generated by a portfolio of shares or other assets in exchange for a fee.

Losses threatened to spill over into the so-called prime brokerage businesses that have been handling the firm’s trading. The group of large Wall Street banks includes Goldman, Morgan, Credit Suisse Group AG, Nomura Holdings Inc., UBS Group AG and Deutsche Bank AG , said people familiar with the firm’s trading.

Goldman Sachs Group Inc. and Morgan Stanley were quick to move large blocks of assets before other large banks that traded with Archegos Capital Management, as the scale of the hedge fund’s losses became apparent, according to people with knowledge o

On Thursday, Archegos asked banks handling its business to meet to hash out a strategy to liquidate its holdings, said a person familiar with the meeting. The firm’s largest positions had turned sharply negative following a long run-up. A proposal emerged for all the banks to hold off on large trades and to talk further over the weekend, but the call ended without any agreement.

On Friday morning, banks started seizing Archegos’ stock, and Goldman Sachs started selling in size. It quickly became clear there would be little to no coordination among the banks.

Goldman and Morgan each raced to liquidate positions tied to Archegos.

The discussion among so-called prime brokerages was extremely unusual and has happened only a handful of times in recent memory, in some cases averting liquidations.

The decision to sell early helped insulate Goldman from losses that have hit other banks. Goldman expects the results of the Archegos account to be “immaterial” to its financial results for the first quarter ending this week, according to a person familiar with the matter.

Morgan Stanley sold 45 million shares of ViacomCBS Inc. Sunday night, marketing the blocks to a select number of clients and responding to big investors who called to ask about additional blocks of stock the bank might be unloading, said traders.

Banks on Monday sold blocks of stocks in companies that also saw selling late last week. Those included Discovery Inc., U.S.-listed Chinese tutoring company GSX Techedu Inc., Chinese e-commerce platform Vipshop Holdings Ltd. and ViacomCBS, again.

Wells Fargo, which on Monday sold blocks of stock, including in ViacomCBS and GSX, also told clients Monday it had finished liquidating its exposure.

Credit Suisse and Nomura weren’t major sellers Friday, traders said.

Credit Suisse said Monday it was too early to quantify the exact impact it faced, but that it could be “highly significant and material” to its results for the first quarter, which ends this month. Nomura said it was owed about $2 billion by a U.S. client. A person familiar with the matter said the trades in question were related to Archegos.

Shares in Nomura fell 16%, a record single-day drop. Credit Suisse’s U.S.-listed shares tumbled 11.5%, the biggest decline in a year. In New York on Monday, Goldman fell 0.5% and Morgan fell 2.6% on a day when the Dow Industrials rose 98 points and the S&P 500 declined modestly.

The Archegos episode is the latest in a long history of blowups to reveal that while Wall Street banks bill themselves as second to none in gathering information relevant to investing, they often struggle to know what is going on next door. That shortfall is germane to the Archegos liquidation because it seems clear that the banks didn’t realize until too late that they were holding similar positions, with malign implications for efforts to keep markets in those shares from falling further.

“You can have a suspicion that maybe this person is doing this trade with a bunch of other people,” said Jay Dweck, a former trading and risk-management executive at Goldman and Morgan Stanley and now consults for banks and hedge funds. “But no one knows the aggregate.”

The steep losses at Archegos come as a council of top U.S. regulators known as the Financial Stability Oversight Council is already scheduled to meet on Wednesday to discuss hedge-fund activity during the pandemic-triggered crisis. The meeting is the first for the risk council during the Biden administration, which has pledged to scrutinize financial weaknesses revealed by the pandemic-triggered market tumult from March 2020. The council is made up of the heads of the Treasury Department, Fed and other agencies.

Dweck, the consultant, pointed to a case that many on Wall Street are hearing echoes of this week: Long-Term Capital Management, a massive hedge fund that blew up in 1998. Firms learned the full extent of the hedge fund’s problems only when government officials summoned them to Long-Term’s offices to pore over its records, he said.

“The upshot is, you’re going to have stuff like this happen,” Dweck said.

Quentin Webb, Justin Baer and Peter Rudegeair contributed to this article.