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Morgan Stanley had $911 million loss in Q1 tied to Archegos meltdown 

Invoice Hwang in 2012

Emile Warnsteker | Bloomberg | Getty Photos

Morgan Stanley posted blockbuster outcomes for the primary quarter, however a single prime brokerage consumer price the agency practically $1 billion.

In its earnings outcomes, Morgan Stanley stated Friday it had a $644 million loss from a “credit score occasion” for that consumer, in addition to $267 million in associated buying and selling losses.

That consumer was Invoice Hwang’s Archegos, Morgan Stanley CEO James Gorman stated throughout a convention name with analysts, confirming what an individual with information of the scenario informed CNBC earlier.

Whereas Morgan Stanley was the most important prime dealer to Archegos, different banks suffered bigger losses. Credit score Suisse, which CNBC has reported was the No. 2 dealer to Archegos, took a $4.7 billion hit to unwind the dropping bets and shuffled prime managers due to the meltdown. Nomura stated it may face $2 billion in losses.  

Throughout his scheduled name with analysts to debate the quarter, Gorman stated Archegos owed it $644 million after its meltdown in late March.

“We liquidated some very giant single inventory positions by way of a sequence of block gross sales culminating on Sunday evening, March 28,” Gorman stated. “That resulted in a internet lack of $644 million which represents the quantity the consumer owed us below the transactions that they did not pay us.”

He added: “Subsequently, we made a administration choice to utterly de-risk the remaining smaller lengthy and quick positions,” Gorman stated. “We determined we’d be out of the chance as quickly as potential, and in so doing, incurred an incremental lack of $267 million. I regard that call as crucial and cash effectively spent.”

Morgan Stanley might have been misled by the household workplace, CFO Jon Pruzan stated in the course of the name. The financial institution held collateral for Archegos primarily based on details that turned out to be unfaithful, he stated.

Archegos representatives couldn’t instantly be situated for remark. Its earlier communications agency stated it not represented the household workplace.

At the very least a part of the Archegos loss was pushed by the truth that Morgan Stanley had been an underwriter on ViacomCBS shares the earlier week, so it held off promoting a block of the corporate’s inventory till Sunday, which brought about the financial institution to be later in promoting than others, Gorman stated.

Throughout the name, an analyst requested Gorman if the episode would change the agency’s strategy to danger administration within the prime brokerage enterprise.

“I feel we’ll actually be wanting onerous at household office-type relationships the place they’re very concentrated and you’ve got a number of prime brokers and albeit, the transparency and lack of disclosure referring to these establishments is simply totally different” from hedge funds, Gorman stated. “That is one thing I am certain the SEC goes to be and that is most likely good for the entire business.”

— CNBC’s Daybreak Giel contributed to this report.

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