April 22, 2021
After making some unfortunate investments, hedge fund Archegos Capital is reported to have lost Morgan Stanley almost $1 billion in the first quarter of 2021. The scandal affected six banks, and surprisingly, Morgan Stanley got off easily compared to the others affected.
Morgan Stanley is a US-based multinational investment bank offering various wealth management services, such as credit, insurance, investment, retirement planning, and banking services, to name a few. Its services are offered to corporations, governments, institutions, and individuals.
How Archegos’ Mistakes Cost Morgan Stanley a Fortune
Archegos Capital Management is a family office founded and run by Bill Hwang. On March 26, 2021, it was revealed that Archegos has failed to meet margin calls, forcing banks to liquidate billions of dollars worth of stocks, causing their share prices to plummet as a result.
The affair resulted in tremendous losses for huge companies, with Credit Suisse reporting a loss of $4.7 billion, and Nomura projected to lose $2 billion. Those who responded quickly and started selling their stocks faster (Goldman Sachs, UBS, Morgan Stanley) did suffer losses, but not to the same extent. Morgan Stanley, in particular, lost $644 million that Archegos owed and an additional $267 million in trading losses.
However, that doesn’t seem to bother Morgan Stanley CEO—James Gorman—who described the loss as “necessary” and “money well spent” and stated that he’s “pleased with how the institution came together and responded to this very complex situation.”
Putting the Archegos loss aside, Morgan Stanley had a pretty lucrative year. During the Archegos scandal, its profits went up by 150%, resulting in a net profit of $3.98 billion, compared to 2020’s $1.59 billion.
What Awaits Morgan Stanley?
Well, since Morgan Stanley’s revenue increased by 17% in the first quarter, even with the losses due to Archegos, it won’t be requiring any crowdfunding help in the near future, as it seems to be doing well on its own.
As Gorman himself said, “We have some phenomenal family office clients all over the world and they’re tremendous institutions… This is not a judgment call on family offices, this is a very idiosyncratic event.” If Morgan Stanley faces no other similar scandals in the near future, we predict that it’s in for steady revenue growth.