This is how financial crashes get rolling, and this episode has some equity derivatives to spice things up. From Tyler Durden at zerohedge.com:
Update (615am ET): Just around the time Nomura closed down 16.3%, its biggest drop on record after warning it faces around $2 billion in prime brokerage losses (see below) tied to a single US client – the now infamous Archegos tiger cub hedge fund – Swiss banking giant, Credit Suisse, was also swept up in the Archegos vortex after the Swiss bank said it faces a potentially “highly significant” loss from a U.S. hedge fund client defaulting on margin calls, sending the Swiss bank’s share plunging as much as 16%, the most since March last year and wiping out all 2021 gains.
While the actual loss number was not defined, estimates pegged it in the $2-3 billion ballpark, and one commentator said that “Credit Suisse $CS lost its entire year profit because it is out-smart by Goldman aka the Sharks on the street and by a One Day.”
“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,” the bank said in an emailed statement, without naming the fund, although the name was quite clear.
Credit Suisse also said it was in the process of exiting positions after the client default.
The loss comes at an awkward time for Credit Suisse, as the Greensill matter is still far from being resolved, and Credit Suisse faces “yet another issue that has the potential to result in a material impact on its results,” Vontobel analyst Andreas Venditti wrote in a note
Global supply chains are in havoc and its having an impact on trade finance, which is a weak link in the world financial system. It may be the first domino to fall. From Tyler Durden at zerohedge.com:
As the dominoes continue to fall in the Greensill Capital debacle, increased scrutiny on the overall trade finance business is starting to spark investor anxiety.
While not directly linked to Greensill’s collapse, Mauritius-based Barak Fund Management has announced that is preparing to restructure its $1 billion money-pool of highly illiquid assets.
Bloomberg reports that the fund is seeking investor approval to move ahead with a plan that involves spinning off illiquid holdings into separate vehicles for clients who want to hold on to their assets. The move follows the fund’s decision a year ago to freeze its money pool as some investments became trapped in a series of hard-to-sell assets across the continent of Africa.
Specifically, the firm “has not seen any significant improvement in the liquidity position of the funds and as such has had to proactively manage the risk components linked to the mismatch between the liquidity of the underlying assets and the liquidity offered to investors,” Barak told clients in the proposal document.
The fund’s current exposure is spread over 97 borrowers in transactions including working-capital financing, according to the restructuring document. As much as 54% of its assets are deemed illiquid, with the heaviest concentration in sectors such as coal mining, consumer goods and fertilizer production in countries from South Africa to Kenya and Congo, the document shows.
Clients opting for liquidation will get their cash back when the firm is able to sell holdings. Those remaining invested will get allocations in a relatively liquid part of the fund, which will continue to put money into the private debt market, and a “side-pocket” created to park illiquid holdings.
“We understand the path to recovery will be challenging,” Barak said in the client document.
The big question hanging over all of this is – just how systemic is this illiquid trade finance market? Given The ECB’s probing of exposures, perhaps Ben Hunt’s recent concerns are less hyperbole than some suggested.
There’s a corporate debt blow up in Europe that may have some serious ramifications throughout the global financial system. From Ben Hunt at epsilontheory.com:
The best way to rob a bank is to own a bank.
I think that the collapse over the past week of Greensill Capital has a lot of systemic risk embedded within it, particularly as the fraudulent deals between Greensill and its major sponsors – Softbank and Credit Suisse – come to light. And that’s not even considering Greensill’s second tier of sponsors – entities like General Atlantic and the UK government – all of whom are up to their eyeballs in really dicey arrangements.
Yeah, that’s Lex Greensill at Buckingham Palace in 2019, receiving a CBE (Commander of the Order of the British Empire) from Prince Charles for … wait for it … “services to the British economy”. LOL.
And yeah, that’s former UK prime minister David Cameron, positively beaming in this photo that his publicist chose for the 2018 announcement that he would be joining his good friend Lex Greensill as a “special adviser” to the company, keen to assist with the company’s mission to “democratize” supply-chain finance and “transform construction finance with Big Data and AI”. I mean, that’s what the white paper says, so it’s gotta be true.
Today, David Cameron is waking up to headlines like this in the UK press:
Hope all those free rides on Lex’s personal fleet of four private jets (all bought by Greensill Capital’s German banking subsidiary and leased back to Lex, btw) were worth it, David.
Is this a Madoff Moment for the unicorn market? Honestly, if you had asked me a few weeks ago, I would have told you that a Madoff Moment was impossible in our narrative-consumed, speak-no-evil market world of 2021. Now I’m not sure. We’ll see, but I think this has legs.