Korean Bilwang behind Wall Street’s’block deal shock’… Loss of KRW 7 trillion, including Nomura Securities

Aggressive investment by large-scale borrowing… Fully concealed the name of the real investor
Snowballs lost after falling US tech stocks… Bil Hwang, who was expelled, is questioned about maintaining influence
Debt amount of 56 trillion won… After the storm seems big

The story behind the $30 billion (about 34 trillion won) block deal (over-the-counter large-scale stock trading) that has shaken the U.S. New York stock market from the 26th (local time) is led by Korean-American Bill Hwang It turned out to be an investment company Akegos Capital. Reuters and others predicted that global investment banks (IBs) could lose up to 6 billion dollars (about 6.8 trillion won). While the opinions about why Mr. Hwang, who was virtually expelled from Wall Street due to insider trading in 2012, could still exert influence, an analysis is raised that the impact of this situation will prolong.

According to the Wall Street Journal (WSJ) and others, Hwang made a name for the total return exchange (TRS) transaction, which makes aggressive investments with large-scale borrowing while thoroughly hiding real investors. Investors like Akegos increase the amount of investment by attracting prime broker (PB) loans to the investor’s principal. Since the legal owner of the investment asset is a PB or a special purpose company (SPC), the actual investor cannot be known from outside. PB collects interest and fees on loans and initiates a’margin call’ that requires additional collateral from the investor when the loaned money becomes dangerous due to a fall in asset prices.

Akegos bought a large number of technology stocks and media stocks using world-renowned investment banks (IBs) such as Japan’s Nomura Securities, Goldman Sachs’ Morgan Stanley, and Swiss Credit Switzerland (CS) UBS as PBs. It is known that from last year to the beginning of this year, stock markets in each country were booming due to the liquidity market, and it was reported that it made great profits.

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However, after the recent decline in technology stocks due to conflict between the US and China and controversy over the overvaluation of technology stocks, Goldman Sachs was the first to initiate a margin call on the 26th. Nomura and CS were also belatedly recovering, but they suffered considerable losses. Nomura’s US subsidiary has already estimated a loss of $2 billion (about 2.27 trillion won). CS and Morgan Stanley did not disclose the amount of the loss, but a considerable amount is expected. Bloomberg analyzed that Archegos’ debt investment would amount to 50 billion dollars (about 570 trillion won). Hwang, a Korean-American in his late 50s, followed his pastor’s father in high school to the United States and worked briefly at Hyundai Securities in the 1990s. After moving to Wall Street, he worked as an aide to Julian Robertson, the’Legend of Hedge Funds’ who led Tiger Management, a famous hedge fund. In 2012, he was convicted of insider trading, but he set up Akegos, which means founder, Jesus, etc. in Greek and aimed for a resurgence. The Financial Times of the UK (FT) reported that the size of Akegos’ asset management has risen from $200 million in the early days of its establishment to $10 billion in recent years. As the operating scale of Akegos surged, it is analyzed that the global investment banks were also angry after resuming transactions with Mr. Hwang in an effort to earn commissions. The global financial community estimates that there are quite a lot of types of investments similar to those of Akegos, given that large-scale asset owners who want to manage their assets as confidentially as possible use small investment companies such as Arcegos. Akegos alone can absorb the shock from the market even if a particular investor goes bankrupt, but in many places, a blow to the financial world is inevitable. Due to the nature of TRS transactions that are not revealed by actual investors, it is not easy to even determine the amount of damage. The fact that the Great Depression of the 1920s also started with a large margin call is also fueling Wall Street’s anxiety. On the 29th, the US Securities and Exchange Commission (SEC) also urgently called the IB officials to discuss countermeasures.

Lee Eun-taek [email protected], reporter Kim Ja-hyun

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