The Man Who Lost $20 billion in 2 Days

We celebrate legends of markets here. I also want to note that on the way up, some are beaten by markets. Bloomberg News reported that Bill Hwang lost $20 billion in 2 days when Archegos Capital Management went down in March 2021.  Archegos had defaulted on margin calls from investment banks like Goldman Sachs, Morgan Stanley, Credit Suisse and Nomura Holdings.

Why It Matters: Hwang ran a family office that imploded in March and caused massive losses at a few big banks when Archegos couldn’t meet margin calls. Archegos had more than $20 billion of capital and total bets exceeding $100 billion.

Global banks lost nearly $10 billion from the Archegos fallout. Credit Suisse Group AG (NYSE: CS), Nomura Holdings Inc (NYSE: NMR) and Morgan Stanley (NYSE: MS) were among the hardest hit.

As they say, everyone remembers the last trade. What destroyed Bill’s family office was total return swaps and risky plays.

A total return swap is a swap agreement in which one party makes payments based on a set rate, either fixed or variable, while the other party makes payments based on the return of an underlying asset, which includes both the income it generates and any capital gains. In total return swaps, the underlying asset, referred to as the reference asset, is usually an equity index, a basket of loans, or bonds. The asset is owned by the party receiving the set rate payment.

But do not think far: when gravity could not hold Nigeria’s stock market just before the great recession of 2008, banks extended credits to investors to buy their stocks, holding the same stocks as collateral!

If you look carefully, if things go bad, banks will lose! I think we have stopped that now in Lagos as believers have been delivered.

If you have time, read about Bill. You will learn one or two things when it comes to investments.

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