Morgan Stanley’s loss from Archegos fiasco: USD911M

NEW YORK (AFP) – Morgan Stanley took a USD911 million loss in the meltdown of Archegos Capital Management, the investment bank’s chief executive James Gorman said on Friday.

That makes Morgan Stanley the latest big bank caught up in the scandal that saw large financial institutions quickly unload shares held via complex instruments for Archegos, a company managing the family fortune of Bill Hwang.

The trigger for the massive sales seems to be a drop in the shares of ViacomCBS, a company to which Archegos had a large exposure.

The banks then demanded funds to cover the losses and, when Archegos could not provide them, seized its assets for sale.

Gorman said the bank liquidated some large positions in late March “that resulted in a net loss of USD644 million, which represents the amount the client owed us under the transactions that failed to pay us.”

A window washer cleans off the lettering at Morgan Stanley headquarters in New York. PHOTO: AP

The company opted to “de-risk” its remaining positions “as rapidly as possible”, he said, “and in so doing, incurred an incremental loss of USD267 million.”

Other firms caught up in the bloodbath include Credit Suisse, which estimated a loss of about USD4.7 billion.

Despite the losses, Morgan Stanley, like other banks, posted blockbuster quarterly profits, which more than doubled to USD4 billion on revenue of USD15.7 billion – a jump of more than 60 per cent.

Michael Hewson at CMC Markets told AFP the hit from Archegos is “a huge loss and has taken the headlines away from what is a very good quarterly performance.

“It’s also a reminder that if you take your eye off the ball from a risk point of view, it can come back and bite you. Hopefully it’s a painful lesson learnt.”