Toru Hanai/REUTERS
Nomura is reportedly tightening financing for some of its hedge fund clients in the wake of the $20 billion collapse of Archegos Capital.
Japan's largest brokerage is facing an estimated $2 billion loss due to the family office blowup, according to unnamed Bloomberg sources.
The Archegos collapse started when the family office, run by Bill Hwang, used total return swaps to take on leverage and place concentrated bets on a handful of stocks like ViacomCBS and Discovery.
Then a decline in share prices sparked a massive margin call that Archegos was unable to meet, leading banks to liquidate the family office's assets.
The result was combined losses of $10 billion for global banks, according to estimates from JPMorgan.
Now in order to prevent similar blow-ups in the future, banks are taking action to reduce risk associated with hedge fund clients. The Securities and Exchange Commission has also opened an investigation into the matter.
Specifically, Nomura is tightening leverage for some clients that were previously granted exceptions to margin financing limits, Bloomberg said, citing people with direct knowledge of the matter.
The Japanese firm is the second bank to take action after the Archegos collapse.
Credit Suisse said earlier in the week that it will change margin requirements on swap agreements to dynamic from static after the collapse. Dynamic margin requirements force clients to post more collateral as positions move down, rather than setting a fixed margin requirement at the onset of the leverage contract.
Before the Archegos implosion, Nomura had been hitting on all cylinders with net income reaching a 19-year high for the nine months ended in December.
Now though, the bank has been forced to cancel the planned issuance of $3.25 billion in senior notes and share prices are down roughly 20% from March 26 highs.
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