A margin call by a broker requires a client to add funds to its account if the value drops below an agreed level. If it can’t, the broker can dump the client’s shares and liquidate its holdings to makeup the shortfall.
Goldman Sachs and Deutsche Bank declined to comment. Morgan Stanley could not be reached for comment.
A source familiar with the situation told CNN Business that Deutsche’s exposure to Archegos was a fraction of that reported by other banks. The financial impact for Goldman Sachs, another lender to Archegos, was immaterial because the bank proactively managed its risk by seizing collateral and selling shares on Friday, another person familiar with the matter told CNN Business.
Wall Street regulators are paying attention.
“We have been monitoring the situation and communicating with market participants since last week,” said a spokesperson for the Securities and Exchange Commission.
US media stocks hit
“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,” Credit Suisse said.
“Nomura is currently evaluating the extent of the possible loss and the impact it could have on its consolidated financial results,” the company said in a statement, adding that its estimate was calculated based on market prices that day.
“Given that this is a net rather than gross exposure, we believe it almost certainly means Nomura will recognize a bottom-line loss in its fiscal fourth quarter ending March 31,” Michael Makdad, a senior equity analyst at Morningstar in Tokyo, said in a note on Monday.
Nomura’s shares plunged more than 16% in Tokyo, the stock’s worst day in at least 20 years. The move wiped more than $3 billion off its market value. Credit Suisse shares fell by 16% in early trading, wiping about $5 billion off its market cap.
— Rob North, Charles Riley, Michelle Toh and Laura He contributed to this article.