Banks Make Post-Archegos Financing Curbs
Victim banks of the Archegos collapse have begun to curb their hedge fund financing businesses with a focus on tightening leverage.
Credit Suisse and Nomura have reportedly tightened financing with hedge funds and family offices, according to a «Bloomberg» report citing unnamed sources.
This follows a $4.7 billion and $2 billion loss, respectively, registered by the two banks.
Tightened Financing
At Credit Suisse, margin requirements have been changed in swap agreements – the same derivative used in the trades of Bill Hwang’s family office – to match the restrictive terms of other prime brokerage contracts by shifting from static to dynamic margining.
It is also considering significant cuts to the prime brokerage unit in the coming months.
Nomura also followed suit with various restrictions including tightened leverage for some clients who were previously granted exceptions to margin financing limits.
Parallel Leverage
According to the report, banks were aware of Archegos’ trading behavior but were not privy to the fact that Hwang had taken on significant overall leverage through parallel positions at multiple firms.
As a result, the Archegos portfolio accumulated assets that are estimated to have totaled as much as $100 billion.
