Template:Archegos capsule: Difference between revisions

From The Jolly Contrarian
Jump to navigation Jump to search
No edit summary
No edit summary
Line 1: Line 1:
[[File:Archegos Positions.png|250px|thumb|left|When [[variation margin]] attacks: ViacomCBS, Tencent, Baidu and Vipshop against the Dow (black)]][[Archegos]] took [[Synthetic equity swap|synthetic]] positions [[Margin loan|on margin]] in on four comparatively [[Illiquidity|illiquid]] stocks — ViacomCBS, Tencent Music Entertainment, Baidu Inc and Vipshop — in sizes big enough to push up their market prices. As their valuations increased, so did the [[net equity]] Archegos held with its [[prime broker]]s. Archegos used that equity to double down on the same investments, pushing the stock further up. The higher the stock went, the thinner the trading volume. [[Archegos]] became an ever-larger part of the market. On 22 March, Archegos’ [[synthetic equity swap|synthetic]] ViacomCBS position had a gross market value of USD5.1bn — more than 10% of ViacomCBS’ market capitalisation. Since Archegos was trading synthetically, ViacomCBS may not have realised it was the only buyer in town.<ref>{{credit suisse archegos report}}</ref> In any case, in a brutal cruel irony, ViacomCBS concluded that market sentiment was so strong that it should raise capital raising, and it duly announced a USD3bn share offering. There turned out to be only one buyer even interested in the offering — Archegos — and it was tapped out of fresh equity to invest. When it declined to participate, the capital raising failed and hell broke loose.
[[File:Archegos Positions.png|250px|thumb|left|When [[variation margin]] attacks: ViacomCBS, Tencent, Baidu and Vipshop against the Dow (black)]]In the months leading up to March 2021, [[Archegos|Archegos Capital Management]] took [[Synthetic equity swap|synthetic]] positions [[Margin loan|on margin]] in on four comparatively [[Illiquidity|illiquid]] stocks — ViacomCBS, Tencent Music Entertainment, Baidu Inc and Vipshop. Trading across multiple [[prime broker]]s, Archegos’ total holdings were big enough to move the market. As valuations increased, so did Archegos’ [[net equity]] with its [[prime broker]]s. Archegos used its equity to double down on the same investments, pushing the stocks up yet ''further''. The higher they went, the thinner their trading volume, and the more of the market Archegos represented.  
 
On 22 March, Archegos’ ViacomCBS position had a gross market value of USD5.1bn.<ref>{{credit suisse archegos report}}</ref> as it was synthetic, Viacom may not have realised Archegos was the only buyer in town. In a cruel irony, Viacom concluded that market sentiment was so strong that it should take the opportunity to raise capital. Alas, it turned out only one Archegos was even interested in its USD3bn share offering — and since Archegos was tapped out of fresh equity it declined to participate. The capital raising failed and hell broke loose.

Revision as of 15:55, 27 November 2021

When variation margin attacks: ViacomCBS, Tencent, Baidu and Vipshop against the Dow (black)

In the months leading up to March 2021, Archegos Capital Management took synthetic positions on margin in on four comparatively illiquid stocks — ViacomCBS, Tencent Music Entertainment, Baidu Inc and Vipshop. Trading across multiple prime brokers, Archegos’ total holdings were big enough to move the market. As valuations increased, so did Archegos’ net equity with its prime brokers. Archegos used its equity to double down on the same investments, pushing the stocks up yet further. The higher they went, the thinner their trading volume, and the more of the market Archegos represented.

On 22 March, Archegos’ ViacomCBS position had a gross market value of USD5.1bn.[1] as it was synthetic, Viacom may not have realised Archegos was the only buyer in town. In a cruel irony, Viacom concluded that market sentiment was so strong that it should take the opportunity to raise capital. Alas, it turned out only one Archegos was even interested in its USD3bn share offering — and since Archegos was tapped out of fresh equity it declined to participate. The capital raising failed and hell broke loose.