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Stock Market Update: Hwang'ing On By A Thread
An article by • Published Mar 30, 2021
Markets were roiled Friday, after large blocks of stock were offered by Goldman Sachs $GS and Morgan Stanley $MS with rumors of a fund blow-up and additional large blocks needing to find a home. Reports over the weekend put the blame on a little known family office named Archegos Capital Management, run by ex Tiger Cub portfolio manager, Bill Hwang.

Massive-sized block trades were offered in:
Baidu $BIDU
Tencent Music $TME
Vipshop Holdings $VIPS
Discovery A $DISCA
Discovery C $DISCK
Farfetch $FTCH
Shopify $SHOP
Viacom $VIAC
GSX Techedu $GSX
iQIYI Inc $IQ

This analysis of the blocks and timing of offers was shared on Twitter: https://twitter.com/BenPaner/status/1376229387658477575?s=20
There are rumors of Hwang running a significantly leveraged book, in the neighborhood of 6x gross. An analysis of 9 of the stocks that saw block trades offered Friday shows outsized increases in holdings from 13-F filings between 3Q20 and 4Q20 at what appear to be the primary PBs (Prime Brokers) involved in the situation - Morgan Stalney $MS, Goldman Sachs $GS, Credit Suisse $CS, and Normura $NMR. Rumors are the Hwang positions are held in total return swaps, thus the securities would be held by prime brokers on behalf of their client and show up in their 13-Fs, rather than one filed by Hwang. As examples, $DISCA and $DISCK saw 543% and 492% increases 3Q20 to 4Q20, respectively, while $TME saw a $132% increase. Hwang apparently kept re-grossing into year-end and likely through much of 1Q21.
Nomura announced a $2 billion loss related to its US operations. Using 12/31 shares, they held $6.2 billion worth of just the 9 names offered Friday as of 3/22/21 (likely holding in swap or directly for HF clients, including Hwang).
What is interesting is the size of the increases in the stocks involved in block trades during 4Q20 at Nomura. Below is a list of the top-50 holdings. 7 out of the top-10 holdings at $NMR were involved in large block trades, with exposure of $6.2 billion as of 3/22 before things rolled over.
How about the other PBs one might ask? Morgan Stanley had the most exposure at $13.8 billion* 3/22 exposure based on 3/22 closing stock prices.
Followed by CS at $10.6 billion
Then Goldman $GS at $6.5 billon

Of course these are positions held across all clients, not just on behalf of Hwang, but the consistency with which the Friday block trades show up as large holdings for these PBs doesn't seem to be a coincidence. Some banks may be hedging or offsetting exposure in different ways, but if Nomura suffered a $2 billion loss from its Hwang exposure, its likely the other banks involved see similar or larger losses. As the saying goes, there is never one cockroach!

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