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Credit Suisse (CS), Nomura (NMR) to be Hit by Archegos' Default

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Credit Suisse and Nomura Holdings (NMR - Free Report) are expecting to take a major hit in first-quarter 2021 results, as a U.S.-based hedge fund, supposedly linked to Archegos Capital Management, defaulted on margin calls made last week by the banks.

A margin call requires a client to add funds to its account if the value of an asset declines below a specified level. Archegos failed to respond to the call, which led investment banks providing service to the hedge fund to dump large quantities of ViacomCBS and Chinese tech cos, in which it held positions.

In a trading update provided recently, Credit Suisse said that though it might be early to measure the exact size of the loss resulting from its plans to exit, it expects the amount to be highly significant and material to the first-quarter results.

Similarly, on Monday, Nomura said that it estimates the amount of the claim to be nearly $2 billion based on market prices as of Mar 26. However, the figure may change depending on unwinding of the transactions and fluctuations in market prices.

Some of the other banks that were affected by this default are Deutsche Bank (DB - Free Report) and UBS Group (UBS - Free Report) . Deutsche Bank's exposure to the fund was very limited in comparison to others. Per a Bloomberg article, the bank did not incur any losses and is in the process of managing its position.

Also, Goldman Sachs expects any loss it may face from Archegos to be immaterial, as its loans to Archegos were fully collateralized. Per the article, Goldman is among the first banks to reduce its exposure and has exited most of its Archegos-related positions.

Shares of Credit Suisse and Nomura have gained 14.3% and 24%, respectively, over the past six months compared with 49.1% growth of the industry.

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Both the stocks are currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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