Wall Street just took a bit hit, and bank stocks like Credit Suisse (NYSE:CS) stock and Nomura (NYSE:NMR) stock are stumbling. This volatility all comes after Archegos Capital Management failed to meet margin calls at the end of last week. So what do you need to know now?
To start, Archegos Capital Management is the family office of Bill Hwang, who established the firm in 2013 to manage his personal wealth. According to statements from Credit Suisse and others, Archegos defaulted on margin calls made last week by a handful of banks. Margin calls refer to a situation in which brokers demand more money from an investor an order to raise a margin account balance. These accounts hold securities purchased with borrowed money, including money borrowed from the broker.
As Wall Street is learning this morning, Credit Suisse and Nomura provided brokerage services to Archegos, and are now reeling. Because Archegos defaulted on the calls, the banks involved are now exiting positions. And, as it turns out, some of those positions are simply massive.
How massive? Bloomberg reported that positions at Archegos Capital may have been over $50 billion. Bank stocks are falling as the brokers now must exit these positions in large block sales, triggering large quarterly losses. CS stock, NMR stock and so many others are stumbling in anticipation of the impact on first-quarter earnings.
Investors should note that while Credit Suisse and Nomura are dominating the headlines, they are not the only bank stocks with exposure. Goldman Sachs (NYSE:GS), Morgan Stanley (NYSE:MS), Deutsche Bank (NYSE:DB) and UBS (NYSE:DB) are also under fire, although not all will face such significant losses.
Bank Stocks and the Archegos Fallout
So what does this mean? And what else should investors know about CS stock, NMR stock and their peers right now?
Many experts are warning that Monday trading could be volatile in the aftermath of the block sales, particularly in the companies affected. Investors are learning that Archegos held large positions in companies like Baidu (NASDAQ:BIDU) and ViacomCBS (NASDAQ:VIAC). Beyond the pressure from the large sales, these equities were already struggling from delisting rumors and overvaluation concerns. Now, there is talk of further block sales as the brokers continue to exit their positions. Some experts are also wondering just how far the speculation in the market goes.
Prepare yourself for a rocky day of trading and watch the bank stocks. While Credit Suisse has already warned of a significant quarterly impact, others are trying to shrug off the fallout. Goldman Sachs says its exposure to Archegos will not result in material losses. Bank stocks will kick off Q1 earnings season, so we will get more insight soon.
On the date of publication, Sarah Smith did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Sarah Smith is a Web Content Producer with InvestorPlace.com.
