Mitsubishi UFJ Financial Group Inc.’s warning of a potential $300 million loss related to a U.S. client is linked to the unwinding of bets by Bill Hwang’s Archegos Capital Management, according to a person familiar with the matter.
Japan’s largest bank joins a growing list of global financial firms taking stock of the fallout from Archegos’s failure to meet margin calls last week. The person asked not to be identified discussing a matter that isn’t public and didn’t share further details.
Lenders are just starting to tally the carnage after the forced liquidation of more than $20 billion of positions linked to Hwang’s New York-based family office roiled stocks from Baidu Inc. to ViacomCBS Inc., casting a spotlight on the opaque world of leveraged trading strategies. Nomura Holdings Inc. and Credit Suisse Group AG have both warned of “significant” losses in the wake of the selloff.
MUFG’s securities arm said in a statement on Tuesday that it is evaluating the extent of the loss at its European subsidiary, which may change depending on market prices and the unwinding of transactions. Any loss won’t have a material impact on the firm’s business capability or financial soundness. A representative for the firm declined to comment beyond what it said in the statement.
Hwang Fallout
A loss of $300 million could badly dent MUFG’s European securities operations. The firm’s London-based subsidiary, MUFG Securities EMEA, posted a profit of just 84 million pounds ($116 million) in 2019, according to the most recent filing available from the U.K. Companies House. Mitsubishi UFJ Securities reported pre-tax profits from the region of about 17 billion yen ($155 million) for the three quarters through December, a presentation shows.
Shares in MUFG closed 0.5% lower on Tuesday, before the announcement.
Nomura, Japan’s biggest brokerage, said on Monday that it had an estimated $2 billion claim against a U.S. client, which Bloomberg identified as Archegos. The Japanese firm has begun assessing the cause of the possible loss tied to a U.S. client and it’s too early to say how it might impact profit, said an executive, who asked not to be identified.
It’s hard to tell when Nomura might determine the amount of any loss and whether it would book a charge for the current quarter, the executive said. Shares of Nomura fell again Tuesday, a day after dropping a record 16%.
In the U.S., Wall Street banks grappling with the implosion of Hwang’s investment firm spent Monday briefing U.S. regulators as Washington started to dig into one of the biggest fund blowups in years. The Securities and Exchange Commission summoned the banks for hasty meetings on what triggered the forced sale of stocks linked to Archegos, people with knowledge of the matter have said.
Goldman Sachs Group Inc., ahead of the pack on unloading positions, is telling investors the impact on its financial results will probably be immaterial. Deutsche Bank AG said it escaped too. Morgan Stanley, another big player that was still shopping blocks of stock as late as Sunday night, has yet to specify any toll.
— With assistance by Takashi Nakamichi, and Donal Griffin
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