Morgan Stanley burned by $911 million hit on Archegos Capital blowup

Loss dents record results driven by surge in dealmaking

Morgan Stanley surprised investors with a $911 million loss tied to the collapse of Archegos Capital Manag­ement, staining what was otherwise a record quarter for revenue and profit.

 

“The current quarter includes a loss of $644 million related to a credit event for a single prime brokerage client, and $267 million of subsequent trading losses through the end of the quarter related to the same event,” Morgan Stanley said Friday in its first-quarter earnings statement.

 

The hit was related to Archegos, Chief Executive Officer James Gorman said on a call with analysts. The CEO called the matter a “very complex event,” and said he was pleased with how the company handled it.

 

The firm’s philosophy is to “cauterise bad stuff” and deal with it as quickly as possible, Gorman said. Archegos won’t change how Morgan Stanley views its prime-brokerage business, but it will be looking hard at certain types of family offices and the adequacy of their financial disclosures, he said.

 

The Archegos hit leaves Morgan Stanley as the only major U.S. bank to be nursing losses from the flameout of Bill Hwang’s family office. The New York-based bank was one of the early backers of Archegos despite the legal taint tied to Hwang, who was previously accused of insider trading and in 2012 pleaded guilty to wire fraud on behalf of his predecessor hedge fund, Tiger Asia Management.

 

“This is not going to be well-received given peer performance on this matter,” Susan Roth Katzke, an analyst at Credit Suisse group AG, said in a note to clients.

 

The Archegos collapse rattled investment banks across continents, with Credit Suisse emerging as the worst hit with almost $5 billion in losses from its exposure to the family office.