A huge fire sale of individual stocks last week has seen Credit Suisse and Nomura shares plummet after warning of “significant” losses.
On Friday shares in ViacomCBS and Discovery plunged 27 per cent alongside leading Chinese stocks, including Tencent and Alibaba.
Over the weekend it was revealed there was a massive margin call on family office Archegos Capital which prompted leading banks to warn of significant losses.
Nomura has reported a $2bn loss at its US subsidiary lined to Archegos and cancelled a bond issue, sending shares down more than 16 per cent overnight.
“Nomura is currently evaluating the extent of the possible loss and the impact it could have on its consolidated financial results,” it said. “The estimated amount of the claim against the client is approximately $2 billion based on market prices as of March 26.
Credit Suisse is down 13.5 per cent this morning after warning its first quarter results could suffer after exiting positions in Archegos.
“A significant US-based hedge fund defaulted on margin calls made last week by Credit Suisse and certain other banks. 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,” the Swiss bank said.
“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.”
Credit Suisse said Archegos Capital defaulted on margins call made last week. This is when a broker demands more money be added to an account to cover potential losses.
Michael Hewson, chief market analyst at CMC Markets, says the slump in media shares highlight the extremely high valuations.
“One thing is certain there are a lot of companies out there trading on hopelessly optimistic valuations and as far as [ViacomCBS and Discovery] are concerned their share prices were way out of sync relative to their long term 200 day moving averages.
Neil Wilson said the debacle is not indicative of systemic risks: “Archegos was massively levered and it appears to have been too concentrated in a number of risky stocks – but when we look at this and think about the GameStop saga and the decline in Tesla as two examples – what we’re seeing are more and more pockets of very unusual trading activity in some stocks.”