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Mitsubishi UFJ (MUFG) Expects $300M Hit From Archegos Episode
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Mitsubishi UFJ Financial Group’s (MUFG - Free Report) securities unit announced on Tuesday that it expects a $300 million hit from an event that occurred on Mar 26 in MUFG Securities EMEA plc. However, the loss is unlikely to affect the “business capability and financial soundness” of the unit.
The event relates to Archegos Capital Management forcibly liquidating about $20 billion in a fire sale of shares on Friday, after failing to respond to the margin call. Post this, global investment banks that were providing service to the hedge fund, started to dump large quantities of shares in which Archegos held positions.
Global Banks Facing Losses
The other two banks that have been hit hard by the failure of Archegos are Credit Suisse and Nomura Holdings (NMR - Free Report) . In a trading update provided recently, Credit Suisse said that though it might be early to measure the exact size of the loss, 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, it expects the figure to change due to fluctuations in market prices.
Some other global banks such as Goldman Sachs (GS - Free Report) , Morgan Stanley and Deutsche Bank expect to witness little or no impact. Also, Wells Fargo announced that it had a prime brokerage relationship with Archegos. However, it informed to have been “well collateralized at all times over the last week and no longer have any exposure. We did not experience losses related to closing out our exposure.”
Regulatory Concern
The event has raised concerns among investors regarding the lack of proper supervision by regulators. Bill Hwang, who runs Archegos as a family office, has a history of wrongdoings. In 2012, he settled a civil lawsuit that accused him of insider trading and manipulating Chinese banks stocks. Hwang and the firms paid $44 million and was barred from the investment advisory industry.
Per a Bloomberg article, the Wall Street firms involved in the event were summoned by The Securities and Exchange Commission to discuss about what triggered the forced sale of stocks linked to Archegos. Also, the blowout from the fire sale is expected to force regulators to take a closer look at the case.
Our Take
Mitsubishi UFJ’s focus on several strategies under medium-term business plan, including upgrade and reformation of its business model and global expansion, might help offset the impact of negative interest rates in the domestic economy, which has been making its lending business less profitable. However, rising costs might deter bottom-line growth.
Shares of the company have gained 37.7% in the past six months compared with 47.6% growth of the industry.
With super high data speed, it will make current cell phones obsolete and unlock the full potential of big data, cloud computing, and artificial intelligence. In the next few years this industry is predicted to create 22 million jobs and a stunning $12.3 trillion in revenue.
Today you have an historic chance to pursue almost unimaginable gains like Microsoft, Netflix, and Apple in their early phases. Zacks has released a Special Report that reveals our . . .
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Mitsubishi UFJ (MUFG) Expects $300M Hit From Archegos Episode
Mitsubishi UFJ Financial Group’s (MUFG - Free Report) securities unit announced on Tuesday that it expects a $300 million hit from an event that occurred on Mar 26 in MUFG Securities EMEA plc. However, the loss is unlikely to affect the “business capability and financial soundness” of the unit.
The event relates to Archegos Capital Management forcibly liquidating about $20 billion in a fire sale of shares on Friday, after failing to respond to the margin call. Post this, global investment banks that were providing service to the hedge fund, started to dump large quantities of shares in which Archegos held positions.
Global Banks Facing Losses
The other two banks that have been hit hard by the failure of Archegos are Credit Suisse and Nomura Holdings (NMR - Free Report) . In a trading update provided recently, Credit Suisse said that though it might be early to measure the exact size of the loss, 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, it expects the figure to change due to fluctuations in market prices.
Some other global banks such as Goldman Sachs (GS - Free Report) , Morgan Stanley and Deutsche Bank expect to witness little or no impact. Also, Wells Fargo announced that it had a prime brokerage relationship with Archegos. However, it informed to have been “well collateralized at all times over the last week and no longer have any exposure. We did not experience losses related to closing out our exposure.”
Regulatory Concern
The event has raised concerns among investors regarding the lack of proper supervision by regulators. Bill Hwang, who runs Archegos as a family office, has a history of wrongdoings. In 2012, he settled a civil lawsuit that accused him of insider trading and manipulating Chinese banks stocks. Hwang and the firms paid $44 million and was barred from the investment advisory industry.
Per a Bloomberg article, the Wall Street firms involved in the event were summoned by The Securities and Exchange Commission to discuss about what triggered the forced sale of stocks linked to Archegos. Also, the blowout from the fire sale is expected to force regulators to take a closer look at the case.
Our Take
Mitsubishi UFJ’s focus on several strategies under medium-term business plan, including upgrade and reformation of its business model and global expansion, might help offset the impact of negative interest rates in the domestic economy, which has been making its lending business less profitable. However, rising costs might deter bottom-line growth.
Shares of the company have gained 37.7% in the past six months compared with 47.6% growth of the industry.
The company currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
5G Revolution: 3 Stocks to Make Your Move
With super high data speed, it will make current cell phones obsolete and unlock the full potential of big data, cloud computing, and artificial intelligence. In the next few years this industry is predicted to create 22 million jobs and a stunning $12.3 trillion in revenue.
Today you have an historic chance to pursue almost unimaginable gains like Microsoft, Netflix, and Apple in their early phases. Zacks has released a Special Report that reveals our . . .
Download now. Today the report is FREE >>