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Bill Hwang of Archegos at center of massive margin call

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Despite being a rarefied “Tiger cub,” Bill Hwang was not well known on Wall Street until he blew up in what might be the biggest margin call of all time, causing billions in losses.

Hwang, a former protege of noted Tiger Management founder Julian Robertson, ran family office Archegos Capital Management, which was so under-the-radar that he wasn’t even initially spotted as the cause of seismic shifts in trading that sent shares of Discovery down 21 percent on Friday.

Hwang has since emerged as the man at the center of a multibillion trading fiasco that is now expected to result in upward of $6 billion in losses for some of his trading partners, including Nomura and Credit Suisse.

Wall Streeters are admittedly stunned by the speed of the crash and the size of the damage left behind even as they brace for a potential battle with lawmakers over regulation of secretive family offices like the one run by Hwang.

“I’ve never seen anything like this — how quiet it was, how concentrated, and how fast it disappeared,” Mike Novogratz, a career macro investor and former partner at Goldman Sachs told Bloomberg News. “This has to be one of the single greatest losses of personal wealth in history.”

“You have to wonder who else is out there with one of these invisible fortunes,” Novogratz added. “The psychology of all that leverage with no risk management, it’s almost nihilism.”

Because Archegos is a family office and not a regulated bank or hedge fund, the details of its crash remain a mystery. What is known is that Hwang established Archegos after he shuttered his hedge funds — Tiger Asia Management and Tiger Asia Partners — following an SEC probe in 2012 alleging insider trading.

The firm then reportedly used derivatives contracts with brokers to supercharge its trades, structuring them in such a way that Archegos’s positions were placed on banks’ balance sheets.

Such contracts, which  don’t need to be disclosed, reportedly allowed Hwang to turn his net worth, estimated at around $10 billion, into trades worth an estimated $50 billion or more.

At some point last week the trades went awry, forcing his trading partners to start selling his positions to pay off his debts to them. It was a margin call turned bad.

Archegos finally broke it’s silence on Tuesday, saying: “This is a challenging time for the family office of Archegos Capital Management, our partners and employees. All plans are being discussed as Mr. Hwang and the team determine the best path forward.”

Sen. Elizabeth Warren, however, is already calling for greater scrutiny.

“Archegos’ meltdown had all the makings of a dangerous situation — largely unregulated hedge fund, opaque derivatives, trading in private dark pools, high leverage, and a trader who wriggled out of the SEC’s enforcement,” Warren tweeted Tuesday.

888 7th Ave, a building that reportedly houses Archegos Capital.
Archegos finally broke it’s silence on Tuesday, saying it was a “challenging time.”
REUTERS

“Regulators need to rely on more than luck to fend off risks to the financial system: we need transparency and strong oversight to ensure that the next hedge fund blowup doesn’t take the economy down with it,” she said.

Analysts have pegged Credit Suisse’s losses tied to Archegos, as well as the smaller collapse of financial startup Greensill from earlier this month, at $4 billion, threatening a year of profits tied to one month’s trading.  Nomura has pegged its losses at $2 billion.

Wells Fargo, by contrast, said it didn’t experience any losses, while Goldman Sachs has reportedly told investors that its losses will be immaterial.

Despite the chaos, Hwang’s former boss, founder of esteemed hedge fund Tiger Management, suggested he’s still rooting for the guy.

“I’m just very sad about it,” Robertson, 88, told Bloomberg in a Monday interview. “I’m a great fan of Bill, and it could probably happen to anyone. But I’m sorry it happened to Bill.”



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Tesla more than doubles Q1 sales, delivers 185,000 vehicles

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Tesla says it delivered nearly 185,000 electric vehicles in the first quarter despite a shortage of computer chips that has hit the global auto industry.

The number was more than double the deliveries for the same period last year. And it beat Wall Street estimates of 168,000 for January through March. The company says in a statement that the Model Y small SUV in China has been well received.

Tesla lists no production figures for its older models, the S sedan and X SUV, during the quarter, but it delivered just over 2,000 of them. It says new equipment has been installed at the Fremont, California, factory and production of new versions is in the early stages.

The strong sales are a sign that demand for the company’s relatively expensive vehicles remains strong despite the pandemic. Analysts polled by data provider FactSet estimate that the average selling price of a Tesla is $49,100.

Shares of Tesla are down more than 9 percent so far this year as some of the shine wore off electric vehicle and tech stocks, which had experienced a big runup last year. The stock closed Thursday down just under 1 percent at $661.75. Markets are closed for the Good Friday holiday.

Tesla Model 3s (seen here) and its Model Y accounted for nearly all of Tesla's first-quarter sales.
Tesla Model 3s (seen here) and its Model Y accounted for nearly all of Tesla’s first-quarter sales.
Xinhua News Agency via Getty Images

Tesla sold just under 500,000 vehicles last year, barely missing a target set by CEO Elon Musk. The company hasn’t given much guidance for this year’s sales figures.

Wedbush analyst Dan Ives called the first-quarter numbers a “jaw dropper,” and a huge home run in the eyes of bullish investors. “We believe China and Europe were particularly robust this quarter as the trajectory now puts Musk & Co. to exceed 850k for the year which is well ahead of whisper expectations,” he wrote Friday.

The Model 3 small car and the Model Y accounted for nearly all of the Palo Alto, California, company’s first-quarter sales. Tesla said it sold 182,780 of both models combined.

Ives wrote that analysts expected more than 12,000 sales of Models S and X, with the miss driven by the chip shortage.

The strong sales came even though the company shut down much of its Fremont production for several weeks in late February and early March. It did not say why, but it’s likely that the company ran short of computer chips.

President Joe Biden’s announcement this week of $174 billion in spending on electric vehicle incentives and charging stations, and rising global demand for electric vehicles should shift sentiment toward Tesla stock, Ives wrote.

“It’s been a brutal sell-off for Tesla and EVs, but we believe that will now be in the rearview mirror,” he wrote.

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55 firms paid no federal income tax last year, report finds

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Dozens of America’s biggest companies paid no federal income taxes last year thanks to a range of tax breaks — including some brand-new ones, a new report says.

The 55 corporations avoided a total of $8.5 billion in taxes on more than $40 billion in pre-tax profits in their most recent fiscal year, according to the Friday report from the Institute on Taxation and Economic Policy.

In fact, 52 of those firms — including household names such as Nike, FedEx and Dish Network — ended up pocketing federal tax rebates worth a collective $3.5 billion, the left-leaning think tank’s analysis found.

And 26 of them haven’t paid a penny in federal income tax in the three years since the Tax Cuts and Jobs Act reform bill was signed into law in 2017, the report says. That group includes shipping giant FedEx and power company Duke Energy, which reported nearly $15 billion in pre-tax income for those three years, according to the findings.

Nike sneakers
Nike is among dozens of major corporations reported to be paying little to no federal income taxes.
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“Duke Energy fully complies with federal and state tax laws as part of our efforts to make investments that will benefit our customers and communities,” company spokesperson Catherine Butler said, adding that Duke paid more than $2 billion in annual state and local taxes in 2020.

Major companies have used loopholes in federal tax law to help their bottom line for decades, the think tank’s researchers note. But they got a fresh boon from the CARES Act, the $2.2 trillion stimulus bill that aimed to help businesses weather the COVID-19 pandemic.

Big firms were able to take advantage of a provision in the bill to use losses they racked up in 2018 or 2019 to offset profits from previous years, which slashed some of their 2020 tax bills to less than zero, according to the report. That measure accounted for at least $500 million of the 55 giants’ tax breaks, the report says.

FedEx stood by the CARES Act tax breaks, saying the law helped it and other companies “navigate a rapidly changing economy and marketplace while continuing to invest in capital, hire team members, and fund employee pension plans.”

FedEx truck
FedEx is said to be among major firms pocketing federal tax rebates while avoiding federal income taxes.
Alamy Stock Photo

But many companies also used more established methods for giving themselves tax discounts.

Those include write-offs for paying executives in stock, which were used by more than a dozen companies, while at least half a dozen took federal research and experimentation credits, the report says.

The list included some companies hit hard by the pandemic, including crafts retailer Michaels, as well as companies that thrived despite the lockdowns, like Salesforce.com, the cloud computing company that announced record 2020 earnings in February.

Salesforce logo
Salesforce is reported to be among thriving firms able to take advantage of numerous write-offs.
Getty Images

By reining in tax breaks like those, “or by re-introducing some form of a ‘minimum tax’ requiring profitable companies to pay at least some tax in any profitable year, Congress and President Biden could take a major step toward a fairer and more sustainable tax system,” authors Matthew Gardner and Steve Wamhoff wrote in the report.

Salesforce, Michaels, Nike and Dish Network did not immediately respond to requests for comment.

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China admonishes H&M over ‘problematic’ map on website

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Swedish retailer H&M continues to clash with Beijing, this time over how it has portrayed the region geographically.

Chinese officials admonished H&M Friday over a “problematic” map on the company’s website in the latest sign of escalating tensions after the Swedish retailer criticized China’s controversial cotton-picking region.

Shanghai government regulators summoned H&M managers to a meeting after internet users complained about the map, officials said on social media.

Chinese officials did not provide any detail about the alleged offense, which they said H&M managers quickly corrected.

But H&M got in trouble with China in 2018 for listing Taiwan as a country on the Taiwanese version of its website. China claims the democratic island country is part of its territory.

H&M was told to “bolster its awareness of the national territory, and really ensure the standardized use of the Chinese map,” the Cyberspace Administration of China’s Shanghai arm said in a post on the WeChat social network, according to The Wall Street Journal.

H&M did not immediately respond to a request for comment Friday.

The map flap is just the latest headache H&M has faced in China, the fast-fashion retailer’s top clothing supplier and its fourth-largest market by sales.

The company was hit with boycott threats last week and had its products pulled from Chinese e-commerce platforms over a statement it made last year saying it does not source cotton from the Xinjiang region, where Beijing has been accused of forced labor practices against Uyghur Muslims.

H&M tried to tamp down the backlash Wednesday with a new statement saying it’s “dedicated to regaining the trust and confidence” of its customers, colleagues and business partners in China, where its store locations were reportedly scrubbed from digital maps last week.

The company said it wants to be “a responsible buyer, in China and elsewhere,” but did not mention Xinjiang specifically.

With Post wires

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