Credit Suisse and Nomura have today warned they were facing significant losses after a US hedge fund, named by sources as Archegos Capital, defaulted on margin calls.
A fire sale of stocks on Friday caused big drops in the share prices of companies linked to Archegos, a source familiar with the matter said, putting markets on edge about the scale of the possible fallout.
Nomura said today that it faced a possible $2 billion loss due to transactions with a US client while Credit Suisse said a default on margin calls by a US-based fund could be "highly significant and material" to its first-quarter results.
Credit Suisse said that a fund had "defaulted on margin calls" to it and other banks, meaning they were now in the process of exiting these positions.
Nomura shares closed down 16.3% while Credit Suisse shares were down 13.4% this morning.
Other bank stocks also fell, Deutsche Bank was down 5% while UBS was 3.8% lower.
Investors said they were nervous about whether the full extent of Archegos' apparent wipeout has been realised or whether there was more selling to come.
Switzerland's financial regulator said today it was aware of the international hedge fund case and in touch with Credit Suisse about it. The Swiss regulator also said several banks and locations internationally were involved.
The Swiss National Bank declined to comment.
Shares in ViacomCBS and Discovery tumbled around 27% each on Friday, while US-listed shares of China-based Baidu and Tencent Music plunged during the week, dropping as much as 33.5% and 48.5%, respectively, from Tuesday's closing levels.
Investors and analysts cited blocks of Viacom and Discovery shares being put in the market on Friday for likely exacerbating the decline in those stocks. Viacom was also downgraded by Wells Fargo on Friday.
Archegos was founded by Bill Hwang, who founded and ran Tiger Asia from 2001 to 2012, when he renamed it Archegos Capital and made it a family office, according to a page capture of the fund's website. Tiger Asia was a Hong Kong-based fund that sought to profit on bets on securities in Asia.
Before starting Tiger Asia, Hwang was an equity analyst for Tiger Management according to Archegos' website. Tiger Management, run by Julian Robertson, was a hugely successful hedge fund, which returned investor money and shut in 2000.
Hwang in 2012 settled insider trading charges by the US Securities and Exchange Commission according to a press release at the time. He and his firms at the time agreed to pay $44m to settle, according to the release.
The scale of the losses at banks is likely to prompt questions about the risk management of banks' exposure to Archegos.
In Japan, Chief Cabinet Secretary Katsunobu Kato said the government would carefully monitor the situation at Nomura and that the Financial Services Agency would share information with the Bank of Japan.
For Credit Suisse this will mark the second quarter in a row the bank has recorded losses on hedge fund exposure and adds to pressure on chief executive Thomas Gottstein, who is grappling with the fallout from the bank's dealings with collapsed supply chain finance company Greensill.
Last quarter Credit Suisse booked a $450m impairment after alternative investment firm York Capital Management, which it held a stake in, informed investors it would wind down its European hedge funds business.
