Five years after Archegos Capital Management blew a $10 billion hole through Wall Street's biggest investment banks, newly surfaced Bloomberg audio from the fund's final week is giving the public its clearest look yet at how a $36 billion family office quietly built a $120 billion swaps book that nobody wanted to see.
Australian analyst Hamish Hodder broke down the tapes and the forensic record of the collapse in a new deep dive that has racked up 177,000 views in 48 hours. The story begins on Monday 22 March 2021. At market close, Archegos held about $36 billion in net assets, up nearly fivefold since the start of the year. A few minutes later, ViacomCBS announced a multi-billion-dollar stock offering. It was Archegos's largest position.
The next day ViacomCBS plunged 9% and Credit Suisse called Archegos for $177 million of additional margin. By Wednesday the situation had become surreal. Archegos risk chief Scott Becker phoned UBS risk manager Brian Fairbanks not to put money in but to wire $173 million out of the account — while owing UBS a roughly $300 million margin call the next day. UBS approved the transfer.
"I just wanted to give you guys the heads up. Obviously there'll be a sizable call tomorrow," Becker told Fairbanks in a call now captured on Bloomberg's tapes. Fairbanks responded that he was "a little surprised you guys put in the wire today for the exit since you've been leaving with us for a while."
On Thursday morning, Archegos co-CEO Andy Mills called UBS to warn the bank. "Frankly, you know, we don't see how we're going to be able to meet those margin calls fully by tomorrow evening at 6:00," he said. "To give you our assurance that we will get through this very quickly, the first thing I want to say is this is a liquidity issue, not a solvency issue."
By Thursday night the margin call across all brokers hit $10.7 billion — more than the fund's remaining equity. On the group call that evening, founder Bill Hwang finally spoke. "This is Bill Hwang, and many many of you I had not met, but thank you for being on the call," he said. "Today was a shock to me that some of these things went down that much, but even after three days of heavy losses we have a strong capital base. We are very confident in our ability to wind down these names, given a little more time." The banks refused.
By Friday morning Credit Suisse was selling $3 billion of its $17 billion exposure. Goldman Sachs unloaded $10.5 billion, Morgan Stanley $8 billion. When the dust settled Credit Suisse had lost $5.5 billion, Nomura $2.9 billion, Morgan Stanley about $1 billion and UBS $744 million. Goldman famously reported no losses — thanks in part to a junior Archegos trader who accidentally wired Goldman $470 million instead of pulling it out. Goldman never sent it back.
The mechanics of the blow-up traced back to a 2019 decision to lower Credit Suisse's swap margin for Archegos from 20% to 7.5%. That shifted the fund's effective leverage from about 5x to 13x on total return swaps, a structure where the bank owns the stock and pays Archegos the gains, minus interest. The swaps were also static-margined rather than dynamically margined, so as Archegos's bets grew the deposited margin did not. By late 2020, Archegos was running about 17:1 leverage against Credit Suisse with just $59 million of margin per $1 billion of exposure.
Credit Suisse's own September 2020 review flagged the problem. Analysts noted Archegos was making "substantial use of leverage relative to peer equity funds" and that 25% up-or-down monthly moves were not uncommon. On 9 February 2021 the bank finally began moving the positions to dynamic margin, which would have required an additional $3 billion from Archegos. The fund dodged repeated emails and phone calls for six weeks. Three calls scheduled between 19 and 23 March were cancelled at the last minute. Within 72 hours of that deadline the fund was gone.
Hwang was later charged with securities fraud, wire fraud, racketeering conspiracy and market manipulation. He was found guilty at trial on 10 counts and sentenced to 18 years in prison. He remains out on bail five years after the collapse, having appealed, and in January reportedly asked President Trump for a pardon. The Justice Department estimated the Archegos collapse destroyed more than $100 billion of equity value across the stocks Hwang touched.