Goldman U-Turn on Hwang Put Bank at Nexus of Margin Call Mayhem

By Erik Schatzker
and Sridhar Natarajan
March 28, 2021, 5:06 PM EDT

  • Tiger Cub’s family office now at center of epic margin call

  • Bank removed him from blacklist, financed his positions

Bill Hwang, a former hedge fund manager who’d pleaded guilty to insider trading, was deemed such a risk by Goldman Sachs Group Inc. that as recently as late 2018 the firm refused to do business with him.

Those misgivings didn’t last.
Wall Street’s premier investment bank, lured by the tens of millions of dollars a year in commissions that a whale like Hwang paid to rival dealers, removed his name from its blacklist and allowed him to become a major client. Just as Morgan Stanley, Credit Suisse Group AG and others did, Goldman fueled a pipeline of billions of dollars in credit for Hwang to make highly leveraged bets on stocks such as Chinese tech giant Baidu Inc. and media conglomerate ViacomCBS Inc.
Now Hwang is at the center of one of the greatest margin calls of all time, his giant portfolio in a messy and painful liquidation, and Goldman’s reversal has thrust it right into the mayhem.

Bill Hwang

Photographer: Emile Wamsteker/Bloomberg

According to two people with direct knowledge of the matter, Hwang’s Archegos Capital Management was forced by its lenders to dump more than $20 billion of stocks on Friday in a series of market-roiling trades so large and hurried that investors described them as unprecedented.

Goldman even emailed clients late Friday to inform them that it had in fact been one of the banks selling. The email, a copy of which was seen by Bloomberg, detailed a total of $10.5 billion in trades. The message didn’t name Hwang or Archegos.

Representatives for Goldman, Morgan Stanley and Credit Suisse declined to comment. Efforts to reach Hwang and his associates at Archegos were unsuccessful.

Large Leverage

A so-called Tiger Cub who worked for Julian Robertson at Tiger Management, Hwang set up Archegos as a family office after shutting down his own hedge fund. Traders familiar with his orders describe Hwang running a long-short strategy with exceptionally large leverage, meaning that for every dollar of his own, he’d pile on several times as much in borrowed money.

Media stocks were hammered on Friday, with shares of ViacomCBS and Discovery part of what Bloomberg News reported as an “unprecedented” $35 billion in block trades, that included Chinese companies as well as the U.S. media conglomerates.

Both shares ended the week down more than 27%, capping a period that saw ViacomCBS’s Class B shares VIAC, -27.31% finishing at their lowest level since Jan. 25 and booking its steepest daily percentage drop in its history.