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Morgan Stanley dumped $5 billion in Archegos' stocks before a massive fire sale hit rivals

Morgan Stanley dumped $5 billion in Archegos' stocks

April 8, 2021: -According to the people, who requested anonymity to speak frankly about the transaction, Morgan Stanley sold nearly $5 billion in shares from Archegos’ doomed bets on U.S. media and Chinese tech names to a group of hedge funds on Thursday, March 25.

A previously unreported detail shows the banks took some extraordinary steps to protect themselves from incurring losses from a client’s meltdown.

The moves gave Morgan Stanley, the biggest equities trading shop worldwide, and its shareholders. While the bank escaped from the episode without material losses, other firms were less fortunate. On Tuesday, Credit Suisse said it took a $4.7 billion hit after unwinding, lost its Archegos positions; the firm also cut its dividend and halted share buybacks.

Morgan Stanley had the consent of Archegos, run by former Tiger Management analyst Bill Hwang, to shop the shares on Thursday, the people said.

According to one of the people familiar with the trades, Morgan Stanley betrayed some clients because they didn’t receive that crucial context.

According to an analysis by market participants, Morgan Stanley was a significant holder of the top 10 stocks traded by Archegos in late 2020, with around $18 billion in overall positions.

 Credit Suisse was the second most exposed with about $10 billion, these sources noted. That means that Morgan Stanley could’ve faced roughly $10 billion in losses had it not acted quickly.

While Goldman’s $10.5 billion sales in Archegos-related stock on Friday, March 26, was reported after the bank listed emails of clients, Morgan Stanley’s move the night before went unreported until now because the bank dealt with less than a half-dozen hedge funds that allows the transactions to stay hidden.

After Morgan Stanley and Goldman sold their blocks of shares with the consent of Archegos, the floodgates opened. According to the sources, prime brokers, which included Morgan Stanley and Credit Suisse, then exercised their rights under default, seizing the firm’s collateral and selling off positions on Friday.

According to the people, Morgan Stanley largely exited its Archegos positions by Friday, March 26, except one holding 45 million shares of ViacomCBS, which it shopped to clients on Sunday.

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