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US hedge fund crisis to hit profits, warn Nomura and Credit Suisse

US hedge fund crisis to hit profits, warn Nomura and Credit Suisse

Japan-based Nomura and Switzerland-based Credit Suisse, which are two of the largest investment banks in the world, have reportedly warned that their respective profits are expected to be severely impacted by the ongoing crisis at a U.S. hedge fund.

While Credit Suisse added that this could lead to a highly significant effect on its next quarterly results, Nomura stated that it could incur a loss of $2 billion from a client in the U.S. The two investment banks have apparently been hit by problems at the Archegos hedge fund, which has led to the sale of shares worth billions of pounds on Friday, 26th March 2021.

As per sources, the unexpected default of the hedge fund is likely to send shivers across stock markets at the global level. Traders will inevitably recollect the demise of Long Term Capital Management two decades earlier. The hedge fund was one of the most popular entities in Wall Street but collapsed in the late 1990s.

As per a statement from Credit Suisse on Monday, an important US-based hedge fund created a default on margin calls that were made in the previous week by certain other banks in addition to Credit Suisse. After the failure of the fund in meeting these commitments of margin, a number of banks comprising Credit Suisse are in the exercise of exiting these positions.

The bank further stated that, at this time, it is premature to quantify the precise size of the loss created from this exit. The loss could be highly material and significant for the first quarter results of the bank.

It is to be noted that organizations caught up in the selling spree comprise big names including Tencent, ViacomCBS, UK online retailer Farfetch, Baidu, and Discovery. While investors in both the banks have been shaken, shares of Credit Suisse came down by 14 per cent and those of Nomura closed down 16 per cent on the Japanese stock market.

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Nandita Bhardwaj

Nandita holds a management degree with specialization in marketing, and boasts of a short-term experience in the field of recruitment. Following her passion for writing however, she decided to pursue a career in the field of content development. Presently, Nandita pens down news pieces for, spanning the verticals of business, finance, and technology.