Credit Suisse, Nomura shares plunge on US hedge fund’s default

Credit Suisse and Nomura Holdings have flagged concerns of significant losses after a major US-based hedge fund defaulted on margin calls made last week, following which shares of the two financial institutions slumped on Monday.

In a statement on Monday, Credit Suisse said that a significant US-based hedge fund defaulted on margin calls made last week by it and certain other banks, and following the failure of the fund to meet these margin commitments, Credit Suisse and a number of other banks are in the process of exiting these positions.

Archegos Capital Management is the hedge fund which defaulted on the margin calls, according to media reports.

“While at this time it is premature to quantify the exact size of the loss resulting from this exit, it could be highly significant and material to our first quarter results, notwithstanding the positive trends announced in our trading statement earlier this month,” Credit Suisse said.

Shares of Credit Suisse plunged 14 per cent on the Swiss Stock Exchange. Similarly, stock price of Japan’s Nomura fell 16 per cent on the Tokyo Stock Exchange.

In a statement, Nomura Holdings, Inc said that on March 26, an event occurred that could subject one of its US subsidiaries to a significant loss arising from transactions with a US client.

Nomura is currently evaluating the extent of the possible loss and the impact it could have on its consolidated financial results.

“The estimated amount of the claim against the client is approximately $2 billion based on market prices as of March 26. This estimate is subject to change depending on unwinding of the transactions and fluctuations in market prices,” it said.

It added that Nomura will continue to take the appropriate steps to address the issue.

“As of the end of December 2020, Nomura maintained a consolidated Common Equity Tier 1 ratio of over 17 percent, which is substantially higher than the minimum regulatory requirement. Accordingly, there will be no issues related to the operations or financial soundness of Nomura Holdings or its US subsidiary,” it said.

Further, it announced that it has reached an agreement with the underwriters of the US dollar senior notes (TLAC-eligible debt) priced on March 23, 2021, to cancel the issuance due to the event which could impact the company’s consolidated financial results.

Nomura intends to consider issuing similar notes after the impact on its consolidated financial results is known and has been properly disclosed, it said.