Morgan Stanley on Friday disclosed a loss of almost $1 billion from the collapse of private fund Archegos Capital Management, undercutting an otherwise upbeat 150% jump in first-quarter profit.
The Wall Street giant was one of six banks that had exposure to Archegos, a family office fund run by controversial former hedge fund manager Bill Hwang. Last month, Archegos defaulted on margin calls and triggered a stock fire sale.
In a call with analysts, Morgan Stanley CEO James Gorman said the bank initially lost $644 million on stocks it held related to Archegos’ positions, which it sold. It then decided to “derisk” its remaining positions, triggering the loss of a further $267 million.
“I regard that decision as necessary and money well spent,” Gorman said.
Other firms hit by the collapse of Archegos include Credit Suisse, which estimated its losses from the event to reach $4.7 billion, and Nomura, which flagged a loss of $2 billion. The fund’s implosion is now being probed by a number of US watchdogs, as well as the Senate Banking Committee.
Shares in Morgan Stanley were down more than 1% in premarket trading after news of its losses broke. However, the bank’s overall results easily beat expectations, spurred on by a spike in trading volumes partly led by the Reddit-driven “meme stock” frenzy around companies such as GameStop and AMC Entertainment.
Morgan Stanley reported a net revenue jump of 61% to $15.72 billion. Net revenue applicable to shareholders rose to $3.98 billion, or $2.19 per share, as of 31 March.