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Morgan Stanley had $911 million in first-quarter losses tied to Archegos fund meltdown

Morgan Stanley lost $911 million on the Archegos fund meltdown

April 19, 2021: -Morgan Stanley posted blockbuster results for the first quarter, but a single prime brokerage client cost the firm almost $1 billion. The firm had a $644 million loss from a “credit event” for the client and $267 million in related trading losses. The New York-based bank said on Friday in earnings whose result handily crossed expectations for the quarter. That client was Bill Hwang’s Archegos, a person with knowledge said, and the bank had no more exposure to the fund collapse, he added.

Morgan Stanley was one of the well-known prime broker to Archegos; other banks suffered more significant losses. Credit Suisse, who was the second broker to Archegos, had a $4.7 billion hit to unwind the losing bets and jumbled top managers due to the incident. Nomura said it could face a loss of $2 billion. 

In his scheduled call with analysts about the quarter, Morgan Stanley CEO James Gorman confirms that the client was Archegos and said the fund owed it $644 million after its March meltdown.

“We liquidated some substantial single stock positions through a series of block sales on Sunday, March 28,” Gorman said. “That resulted in a net loss of $644 million, which represents the amount the client owed us under the transactions that they failed to pay us,” Gorman added.

The family office may have misled morgan Stanley, CFO Jon Pruzan said in the call. The bank held collateral for Archegos depending on facts that turned out to be untrue, he said. An analyst asked Gorman if the episode would change their risk management approach in the prime brokerage business.

“I think we’ll certainly be looking hard at family office-type relationships where they can concentrate, and you have more than one prime broker, and the transparency and lack of disclosure relating to those institutions are just different” from hedge funds, Gorman said

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