In 2007/8, BNP Paribas froze funds that were exposed (over leveraged) to US subprime mortgages triggering the beginning of the 2008 financial crisis.
In 2021, we have Credit Suisse & Nomura facing large losses with their hedge fund client Archegos Capital management. (ACM). Both banks are prime brokers of ACM and lend cash, securities and process its trades.
According to Bloomberg, Archegos Capital management is a long-short strategy fund with large leverage.
ACM took large bets on media and US listed Chinese technology stocks. As those stocks plunged, it triggered a margin call.
Why a Margin call?
ACM's strategy was to borrow large funds from its brokers to leverage / buy large equity positions. When those stocks fell below a certain level, then ACM had to raise cash to meet the brokers loan terms. This triggered a panic sell, leading to large losses for the fund and the banks. As stocks were quickly sold it also triggered an accelerated collapse of these share prices. (According to sources, ACM was forced into unwinding about $20Bn of those stocks).
More frightening was that the CEO of Archegos Capital management, pleaded guilty in 2012 for wire fraud, insider trading and stock manipulation but banks were happy to trust him again and extend large credit facilities. Where was the 'know your client' – KYC basic rule?
- Those 2 banks are likely to have substantial losses. According to JP Morgan, banks could face looses of up to $5Bn.
- Other bank shares involved (UBS, Morgan Stanley, Wells Fargo) have been impacted and in general financial stocks have been affected.
- It could or will trigger a review by banks and regulators of similar funds and leverage positions around the world. Could that lead to a snowball effect on the hedge fund industry and impact its HNW clients?
- This is the second unusual market event in 2021 with GameStop shares, which were shorted by the hedge fund industry while being pushed up by internet traders. The stock rose from $61 to $483 and estimated losses for the short selling hedge funds were estimated to be around $20Bn, unsurprisingly volatility rose to 37%.
- Investors may decide to be careful with their position in financial equities and Chinese technology stocks as it could impact market volatility.
So, why should you choose Akoni to help you with your client’s cash decisions?
1) Safe and secure with FSCS protection
All deposits are held with each bank providing protection of up to £85,000 per bank, or up to £1 million for Temporary High balances.
2) Diversifying risk (spreading money across savings providers)
With the option to spread cash across several providers on the Akoni Cash Management Platform, you can diversify risk, and increase the chances of positive returns.
2) Increased returns & Better interest rates
In a climate of economic uncertainty, and with interest rates being cut across many providers, it’s not easy to find decent interest rates in a simple way. With Akoni, you can find competitive interest rates to suit your client’s specific needs.
4) Quicker, and hassle-free - no form filling
Akoni Hub provides a hassle-free cash management experience - your clients can onboard and open an account online with no fuss. Clients will only need to complete one AML/KYC process, can switch between providers, and manage their account on the Akoni Cash Management Platform in just a few clicks.
5) White label Adviser portal and tools
You have the flexibility to create a platform that works for you and your clients. Add your branding to showcase who you are through a sleek, professional cash management platform designed with you in mind.
Find out more about Akoni: Akoni is an award-winning UK cash platform, which provides a marketplace to financial advisors and wealth managers through a bespoke white-label offering, or off-the-shelf offering. Akoni uses innovative technology to personalise cash planning solutions for clients, and also provides a full API solution to banks and insurance clients.