Courtesy of Pam Martens
By Pam Martens and Russ Martens
This morning, UBS reported that it had experienced a hit in the first quarter of $774 million related to its exposure to the implosion of the family office hedge fund, Archegos Capital Management. That brings the tally thus far to more than $10 billion in losses to the global mega banks that have acknowledged losses from their relationship with Archegos.
The only thing surprising to us about the Archegos announcement from UBS was that it didn’t take a bigger hit.
According to the stock positions reported by UBS on its 13F filing with the SEC for the quarter ending December 31, 2020, it had significant exposure to seven of the same stocks that Archegos had arranged swap contracts on with its numerous prime brokers: ViacomCBS, Discovery, Tencent Music Entertainment Group, Vipshop Holdings, iQIYI Inc., Baidu, and GSX Techedu. (For how these swap contracts with Archegos worked, see our report: Archegos: Wall Street Was Effectively Giving 85 Percent Margin Loans on Concentrated Stock Positions – Thwarting the Fed’s Reg T and Its Own Margin Rules.)
The large position of more than 11 million shares that UBS held in GSX Techedu immediately caught our attention. As of December 31, 2020, that would have had a market value of more than $568 million. That’s a very large exposure to a company that numerous short sellers had publicly called a fraud in early 2020.
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