How to lose a whopping Sh2trn in two days

The gospel is told of a God-fearing Christian named Sung Kwook “Bill” Hwang.  The son of a Korean missionary, Bill worked his way up from being a “Tiger cub”, a moniker for an alumnus of the prestigious Tiger Management hedge fund powerhouse. His latest venture and the name of the company he founded in 2013 was Archegos.

Until a few weeks ago, you would be forgiven for thinking this was the name of some ship in some Greek Odyssey you vaguely remembered. It turns out it was a modern-day New York-based family office that controlled a global portfolio worth tens of billions of dollars.

The highly secretive and low-key Mr Hwang, it seems, was a miracle maker, even by Wall Street standards. This present-day soothsayer had an unerring ability to pick rising stocks, eventually amassing a substantial fortune under his firm.

Financial whale

Prophet Hwang was also a financial whale. Archegos applied for loans from multiple lenders worth five times the value of the stocks it held in publicly listed companies.

Bad luck the value of the stocks fell and the banks panicked and started selling the equities they had been given as securities .The domino effect saw prices hit rock bottom in firms where, unbeknownst even to them, Archegos held major positions like Viacom CBS, Discovery , GSX Techedu and Shopify.

So were there any red flags? Yes, very obvious ones waving from the parapet of the castle, of a distinct blood-red colour. It wasn’t the first time Mr Hwang had come under censure. In 2012, he pleaded guilty to wire fraud on behalf of his then hedge fund Tiger Asia and had in the past been accused of insider trading by the authorities.

After paying circa $60 million worth of fines, Bill took the paltry remnants of his fortune and built it up under Archegos Capital Management (rumoured to be worth $50 billion at its peak).

And this was too much for the banks, even though internally their risk functions had flagged concerns with dealing with a white-collar crook who had way too much money to be ignored.

And so one by one they buckled and through their green-coloured glasses were unable to figure out that all of them were essentially being offered the same equity holdings in exchange for loans.

With a larger balance sheet than many banks, one wonders why Archegos wouldn’t be regulated given its exposure to the global financial system.

And this is exactly the question policymakers were left asking on these so-called non-banks.

“So you now agree you made the wrong decision to weaken supervision?” no-nonsense Senator Elizabeth Warren from Massachusetts asked the Fed’s Vice-Chairman for Supervision Randal Quarles – who infamously oversaw the removal of Credit Suisse from the list of large foreign banks worthy of supervision by the US regulator.

Credit Suisse was the ‘winner’ of the loss-making firms taking a staggering $5billion plus in bottom-line hit. The second ‘best’ was Nomura Holdings of Japan with only $2 billion down the drain and for once Goldman Sachs was in ‘last’ place.

Feeling the heat

Across the globe financial watchdogs are feeling the heat, including the UK Prudential Authority under whose geographical jurisdiction a significant part of the loss was incurred.

Two years before, in 2019, Mr Hwang had said, “I try to invest according to the word of God and the power of the Holy Spirit…In a way it’s a fearless way to in-vest. I am not afraid of death or money.”

I wonder whose prayers have reached the ears of our Lord: Hwang, the fearless risk-taking billionaire entrepreneur or working-class families just trying to survive – whose money was lost?

I argue it’s a tougher time for the church-going pensioners who lost their life savings.

The author is the Managing Partner of C.Suite Africa, a management consultancy firm. [email protected]