Bill Hwang made a huge, secret bank bet before Archegos collapse
BNN Bloomberg
His wager on a bank’s shares sent the price rocketing before the lender raised capital. Then Archegos imploded, taking the stock down too.
It’s a move that’s almost unthinkable even for Wall Street’s most maverick investors, for fear of landing in regulatory crosshairs.
But buried in the billions Bill Hwang wagered and lost, the man behind Archegos Capital Management used derivatives to secretly build a more-than 20 per cent stake in a U.S. regional bank, right under the noses of financial watchdogs, according to people with knowledge of the situation. That sent the stock on a wild surge, and when Archegos collapsed, a dramatic plunge.
What’s more, Archegos and the bank had private conversations about a significant investment that wasn’t revealed to other shareholders, said the people, asking not to be identified because they weren’t authorized to speak publicly. As the stock soared, executives at the Dallas-based lender raised record new capital from unwitting investors.
The events at Texas Capital Bancshares Inc. offer a rare look at what happens when a risk-taking investing whale such as Hwang dives into a stock -- let alone one belonging to a highly regulated bank. Authorities have long discouraged outsiders from potentially influencing institutions that gather deposits, even thwarting the likes of Warren Buffett from beefing up some of his favorite bank bets. But their concerns also extend to the danger a big shareholder could quickly retreat, sending a lender’s stock into a tailspin, and rattling counterparties and customers.
The extent of Archegos’s involvement with the Texas bank adds another dimension to a saga that’s already prompted probes and reviews around the world. Watchdogs including the U.S. Securities and Exchange Commission have said they’re examining whether the rules themselves need to be rewritten to close any loopholes and eliminate gray areas to ensure investors like Archegos disclose outsize wagers.
“It goes against the intent of what the regulations and laws were set up for,” said Bill Dudley, the former New York Federal Reserve President. “If people go around and circumvent those laws and regulations, then you have a problem, and you’ve got to do something about it.”
