Mizuho investigates possible losses from Archegos collapse

Mizuho is investigating whether it suffered significant losses from the collapse of Archegos Capital as it emerged that the Japanese bank had a close client relationship with the US-based family office, according to people with direct knowledge of the situation.

The internal probe at Mizuho followed warnings this week from Nomura and Mitsubishi UFJ Financial Group that the Japanese lenders faced respective losses of $2bn and $270m from exposure to an unnamed client.

In both cases, people familiar with the situation have confirmed that the client was Archegos, a fund run by former hedge fund manager Bill Hwang, that was forced into default by a huge margin call last week.

Although Mizuho does not offer a full suite of prime brokerage services, people close to the situation said the Japanese bank had provided substantial equivalent facilities to Archegos and that its potential losses could be similar to those of MUFG.

A group of banks, hungry for Archegos’s high commissions, provided the family office with more than $50bn of combined leverage in volatile equities through swaps contracts and other financing, said people with direct knowledge of the situation.

Executives from two of Archegos’s prime brokers are investigating whether Hwang deliberately misled them over the extent of the replicated positions he had built up with leverage provided by rival banks, according to people familiar with those probes. Archegos could not immediately be reached for comment.

Mizuho said it had no plans to revise its earnings estimates but would do so if necessary. The bank declined to comment on its internal investigation into its exposure to Archegos or on individual client relationships.

The fallout from Archegos, whose missed margin call last week triggered a chaotic fire sale of ViacomCBS shares and a disorderly rush to exit highly leveraged positions on Friday, has affected a circle of nine global banks with varying levels of exposure.

As well as Goldman Sachs, Morgan Stanley and UBS, which have indicated their losses should be minimal, the group includes Credit Suisse, whose potential losses are estimated at about $4bn, according to people close to the Swiss investment bank.

According to bankers directly involved, discussions were held last Thursday between Archegos and six banks that provided the fund with prime brokerage services.

The talks focused on whether the unwinding of Archegos could be managed in an orderly manner, but those efforts were thwarted when some banks moved first with sales of Archegos-linked stocks.

Mizuho, Deutsche Bank and MUFG were not involved in those discussions, according to people familiar with the situation, because their exposure was considered lower than that of the other banks.

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