How a family office led banks to $10 billion in losses Or how not to use leverage.

There was this trader, Bill Hwang, also known as Sung Kook Hwang. After his fund, Tiger Asia, was shut down due to insider trading, and Hwang himself was banned from trading in the Hong Kong market, he came to the US exchanges.

Anonymous billionaire 🕵️‍♂️

Bill opened a family office called Archegos Capital Management, which wasn’t subject to strict SEC oversight. Hwang used derivatives — total return swaps. These allowed him to hold huge positions without revealing his name or buying stocks directly.

This way, Archegos was able to borrow from several major banks simultaneously, without the banks even being aware of it. Credit Suisse, Nomura, Morgan Stanley, UBS, and other institutions lent the fund enormous sums. With $10 billion in cash, the family office managed a portfolio worth $50–$100 billion.

Leverage banks would rather forget  🏦

Diversification? Never heard of it. Hwang bet on the growth of about a dozen companies (ViacomCBS, Discovery, Baidu, GSX Techedu, and so on). His positions in some of them were larger than BlackRock’s — up to 70% of freely traded shares.

Then came the margin call. In March 2021, shares of ViacomCBS and others began to plummet, and banks demanded additional collateral to maintain positions.

There was no money, of course. Banks realized that they had all lent huge sums to one client for the same securities. The market saw sell-offs worth more than $20 billion. ViacomCBS, Discovery, and others plummeted by tens of percent in a matter of hours.

And then everybody went down 📉

Credit Suisse lost $5.5 billion and later had to become part of UBS. Nomura lost $2.9 billion, Morgan Stanley lost $911 million.

As a result, top executives at many banks lost their jobs, the SEC introduced new rules on swap disclosure, and Bill Hwang himself was sentenced to 18 years in prison for fraud.

The moral: trade honestly and wisely. UTEX offers leverage up to ×100 and built-in risk management for this purpose. Don’t be like Sung Kook.

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