Two of the world’s biggest investment banks have warned their profits are likely to be severely affected by a crisis at a US hedge fund.
Switzerland’s second-biggest bank Credit Suisse said it could have a “highly significant” impact on its next quarterly results.
Japan’s Nomura said it could make a $2bn (£1.4bn) loss from a US client.
Both have been hit by problems at hedge fund Archegos, which led to the sale of billions of pounds of shares on Friday.
Hedge funds make money buying and selling shares. It is thought that Archegos made some large investments in certain companies that started to go wrong, and its backers then insisted it raise money in a hurry, in what is known as a margin call, prompting some unusually large share sales.
A margin call is when a bank asks a client to put up more funds if a trade partly funded with borrowed money has dropped steeply.
If they can’t afford to do that, the lender will sell the shares to try to recover what it is owed.
Companies caught up in the selling spree include big names such as ViacomCBS, Discovery, Tencent, Baidu, and UK online retailer Farfetch.
Investors in both banks have been rattled, Credit Suisse shares are down 14% and Nomura’s closed down 16% on the Japanese stock market.
Fears over who else might be affected by the matter has prompted falls in the shares of other banks, including Deutsche Bank and Goldman Sachs, although by far smaller amounts.
Credit Suisse’s fortunes are already facing a hit from its lending to Greensill Capital, the finance firm whose collapse has put at risk the future of the UK’s Liberty Steel.
News Source: BBC News