Bill Hwang, founder of Tiger Asia Management LLC, exits federal court in Newark, New Jersey, U.S., on Wednesday, Dec. 12, 2012.
Emile Warnsteker | Bloomberg | Getty Images
Morgan Stanley posted blockbuster results for the first quarter, but a single prime brokerage client cost the firm nearly $1 billion.
The firm had a $644 million loss from a “credit event” for that client, as well as $267 million in related trading losses, the New York-based bank said Friday in first-quarter earnings results that handily exceeded analysts’ expectations for the quarter.
That client was Bill Hwang’s Archegos, according to a person with direct knowledge of the matter, who added that the bank had no more exposure to the fund collapse.
During his scheduled call with analysts to discuss the quarter, Morgan Stanley CEO James Gorman confirmed the client was Archegos and said the fund owed it $644 million after its meltdown in late March.
“We liquidated some very large single stock positions through a series of block sales culminating on Sunday night, March 28,” Gorman said. “That resulted in a net loss of $644 million which represents the amount the client owed us under the transactions that they failed to pay us.”
He added: “Subsequently, we made a management decision to completely de-risk the remaining smaller long and short positions,” Gorman said. “We decided we would be out of the risk as rapidly as possible, and in so doing, incurred an incremental loss of $267 million. I regard that decision as necessary and money well spent.”
Later, an analyst asked Gorman if the episode would change their approach to risk management in the prime brokerage business.
“I think we’ll certainly be looking hard at family office-type relationships where they are very concentrated and you have multiple prime brokers and frankly, the transparency and lack of disclosure relating to those institutions is just different from the hedge fund institutions,” Gorman said. “That’s something I’m sure the SEC is going to be looking at and that’s probably good for the whole industry.”
This story is developing. Please check back for updates.
With assistance from CNBC’s Dawn Giel.