Biggest Japan bank joins Nomura in bracing for Archegos loss

[TOKYO] Mitsubishi UFJ Financial Group 's warning of a potential US$300 million loss related to a US 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.

Nomura Holdings and Credit Suisse Group have both warned of "significant" losses in the wake of the Archegos unwinding, which roiled US markets.

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.

Lenders are just starting to tally the carnage after the forced liquidation of more than US$20 billion of positions linked to Hwang's New York-based family office roiled stocks from Baidu to ViacomCBS, casting a spotlight on the opaque world of leveraged trading strategies.

A loss of US$300 million could badly dent MUFG's European securities operations. The firm's London-based subsidiary, MUFG Securities EMEA, posted a profit of just US$116 million in 2019, according to the most recent filing available from the UK Companies House. Mitsubishi UFJ Securities reported pre-tax profits from the region of about US$155 million for the three quarters through December, a presentation shows.

Nomura, Japan's biggest brokerage, said on Monday that it had an estimated US$2 billion claim against a US client, which Bloomberg identified as Archegos. The Japanese firm has begun assessing the cause of the possible loss tied to a US 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 per cent.

In the US, Wall Street banks grappling with the implosion of Mr Hwang's investment firm spent Monday briefing US 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, ahead of the pack on unloading positions, is telling investors the impact on its financial results will probably be immaterial. Deutsche Bank said it escaped too. Morgan Stanley, another big player has yet to specify any toll.

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