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Archegos fallout: UBS loses $774m as Nomura crashes to worst loss in decade

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Oscar Williams-Grut
·Senior City Correspondent, Yahoo Finance UK
·3-min read
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Watch: HSBC profits soar, but Archegos hits UBS, Nomura

UBS (UBSG.SW) and Nomura (8604.T) have both reported steep losses linked to the collapse of client Archegos Capital, as the fallout from the New York family office's implosion becomes clearer.

UBS on Tuesday said it took a $774m (£560m) hit from a "default by a US-based client of our prime brokerage business" in the first quarter.

Japan's Nomura, meanwhile, reported its heaviest quarterly loss since the financial crisis as it booked a $2.3bn loss on its dealings with Archegos.

READ MORE: Hedge fund blowup sends shockwaves through Wall Street and the City

Archegos was the family office of Bill Hwang, a former star trader who made his bones at legendary hedge fund Tiger Management. Archegos was little-known outside of a select group that dealt with it on Wall Street but the company exploded into the headlines in March after it blew up spectacularly.

Hwang had made a serious of highly concentrated bets on tech and media stocks using money borrowed from banks. Leverage ran into the tens of billions. 

When share prices started to fall, Hwang and Archegos were unable to meet margin requirements, which left banks scrambling to exit positions and claw back the money they had lent.

The collapse has left some banks nursing billions in losses and prompted questions about how Hwang was able to accumulate such large and risky bets across a number of lenders without anyone raising the alarm.

UBS headquarters in Zurich, Switzerland. Photo: Fabrice Coffrini/AFP via Getty Images
UBS headquarters in Zurich, Switzerland. Photo: Fabrice Coffrini/AFP via Getty Images

READ MORE: Credit Suisse warns Archegos Capital blowup will cost it £3.4bn

"We are all clearly disappointed and are taking this very seriously," UBS chief executive Ralph Hamers said on Tuesday. "A detailed review of our relevant risk management processes is underway and appropriate measures are being put in place to avoid such situations in the future."

Archegos marred what was an otherwise decent quarter for UBS. Income was up 10%, pre-tax profit was up 14% to $2.3bn, and the bank beat its return on equity forecast. Hamers reported "record activity across our client franchises".

Analysts at Barclays said the size of the Archegos loss was "a surprise". Shares fell 3.3% in Zurich.

UBS shares fell on the update about Archegos. Photo: Yahoo Finance UK
UBS shares fell on the update about Archegos. Photo: Yahoo Finance UK

At Nomura, the Archegos affair pushed the bank to a loss of $1.5bn for the quarter. 

READ MORE: Credit Suisse faces battle to win back trust after Archegos and Greensill

"We take the matter with the US client very seriously," chief executive Kentaro Okuda said in a statement. "We remain committed to strengthening management and enhancing our risk management framework as we continue to build our operating platform to deliver consistent earnings across our global franchise.”

Nomura had already told investors to expect a $2bn hit from the Archegos affair. Shares rose 2% on Tuesday in Tokyo.

Nomura shares were higher on Tuesday despite the loss. Photo: Yahoo Finance UK
Nomura shares were higher on Tuesday despite the loss. Photo: Yahoo Finance UK

Nomura was one of the biggest losers from the Archegos collapse, along with Credit Suisse (CSGN.SW). The Swiss lender has warned it faces a loss of $4.7bn on its Archegos book.

Goldman Sachs (GS), Morgan Stanley (MS), Deutsche Bank (DBK.DE), and Wells Fargo (WFC) all also dealt with Archegos but have reported far smaller losses or immaterial impacts from the implosion.

UBS said it exited its remaining Archegos positions earlier this month and would take an "immaterial" charge in the second quarter linked to the sales.

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