Wells Fargo Says No Losses Taken on Archegos Capital, Shares Gain

Wells Fargo said it "did not experience losses related to closing out our exposure” to the Archegos Capital hedge fund.
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Wells Fargo  (WFC) - Get Report shares moved higher Tuesday after the bank said it has cleared all exposure to Archegos Capital, the hedge fund at the center of last week's media-stock selloff.

Archegos was named as the hedge fund -- which now operates as a family office -- behind around $20 billion in block traders of U.S. and China-based media companies last week that triggered sharp declines in several blue-chip stocks and potentially billions of losses for the prime brokerage division of investment banks such as Credit Suisse Group  (CS) - Get Report and Nomura Holdings  (NMR) - Get Report

JPMorgan analysts estimated Tuesday that bank losses could reach $10 billion -- twice its original estimate -- 

“We had a prime brokerage relationship with Archegos," Wells Fargo said in a statement. "We were 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.” 

Wells Fargo shares were marked 3.4% higher in late-morning trading Tuesday to change hands at $39.77 each, a move that extends their six-month gain to around 70%.

Archegos Capital reportedly took on positions of between $10 billion to $20 billion in so-called total return swaps (TRS) that allow a 'buyer' to receive running payments on a basket of reference shares without actually owning them. Archegos was also reported to have used 'contracts for difference" or CFDs, which are similar to total returns swaps but only pay out at the end of a defined period.

Leverage was used to increase that exposure, which was based on U.S. and China-based media stocks including ViacomCBS VIAC, Discovery  (DISCA) - Get Report, Baidu  (BIDU) - Get Report and Tencent Music TME, while the shares themselves were held by the banks, which acted as prime brokers New York-based Archegos.

"We are still puzzled why Credit Suisse and Nomura have been unable to unwind all their positions at this point, as we would expect to get an announcement as soon as this is the case," JPMorgan said. "We expect full disclosure by the end of the week at the latest from Credit Suisse and would keep an eye on credit agencies' statements as well." 

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