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Credit Suisse, Nomura reportedly hit by Bill Hwang hedge fund blowup

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A forced hedge fund liquidation that started last week hit global investment banks Credit Suisse and Nomura on Monday after they warned of financial troubles as a result of the blowup.

Nomura shares fell a record 16 percent on Monday as Credit Suisse’s shares dropped 15, its biggest fall since the pandemic struck last March.

Credit Suisse’s plunge came after it warned of a “highly significant and material” hit to its first quarter results tied to trouble at a “US-based hedge fund” that the Wall Street Journal has identified as Archegos Capital management, led by Bill Hwang, a former protégé of hedge-fund titan Julian Robertson.

The unnamed hedge fund “defaulted on margin calls made last week by Credit Suisse and certain other banks,” the Zurich-based bank said Monday. “Following the failure of the fund to meet these margin commitments, Credit Suisse and a number of other banks are in the process of exiting these positions.”

Japanese-based Nomura also warned a financial hit tied to $2 billion its owed by a US client, which reports have identified as Hwang’s Archegos.

The warnings come as the Journal reports on a forced liquidation of Hwang’s hedge fund, which has triggered stock selling on a mass scale valued at $30 billion since last week.

On Friday, the hedge fund implosion pulled down major US media companies ViacomCBS and Discovery, sending shares tumbling 27 percent, marking their biggest declines ever.

As Wall Street last week struggled to grasp what was happening, some analysts pointed to a wider market correction. But over the weekend, it emerged that the selling was the result of Goldman Sachs and Morgan Stanley unloading big block trades because Archegos had borrowed money for trades and wasn’t able to make good on its debts when the banks asked for more capital to cover losses, known as a margin call.

Morgan Stanley and Goldman Sachs did not comment, although Morgan Stanley has reported told investors it sold $15 billion worth of blocks in the last few days and has no more blocks to sell, according to CNBC.

The Securities and Exchange Commission said Monday that it is monitoring the situation, and has been in communicating with market participants since last week.

Julian Robertson, co-founder of Tiger Management.
Julian Robertson, co-founder of Tiger Management.
Bloomberg via Getty Images

As a Robertson protege, Hwang was a member of an elite group of hedge funders known as a “Tiger cub,” a reference to Robertson’s Tiger Management. He used that cred to open a multi-billion dollar Asia-focused hedge fund, Tiger Asia Management in New York before shutting it down in the wake of a 2012 insider trading plea tied to Chinese bank stocks.

Hwang then focused on running his own money out of Archegos, a family office. Investment shops without outside investors are usually allowed to take bigger risks as they are under less scrutiny by regulators.

In Archegos’ case, the firm used derivatives contracts with brokers, or swaps, to supercharge his trades, Bloomberg reported. But Hwang was forced by his bankers to sell more than $20 billion worth of shares after some trading positions moved against him, Bloomberg said.

As the bets imploded, Hwang’s prime brokers, in this case Goldman and Morgan Stanley, started demanding he provide more collateral. They then exercised their right to liquidate his positions to recover their money.

888 7th Ave, a building that reportedly houses Archegos Capital.
888 7th Ave., a building that reportedly houses Archegos Capital.
REUTERS

Once the banks began liquidating his positions, it triggered selling by other investors to avoid losses on stocks that would soon be plummeting in value. Nine stocks bore the brunt of this sell off, including ViacomCBS, Discovery, Shopify, Chinese firms Tencent Music, Baidu, GSX, iQiyi Inc., Vipshop Holdings, and UK online retailer Farfetch.

While much of the block trading appears to be over, there is still the potential for fallout, said Richard Hunter, the head of markets at Interactive Investor. “The reported liquidation of some block trades and a potential hedge fund default will be closely monitored by investors for any ripple effects over the coming days, although for the moment the moves appear to be confined to a handful of specific stocks.”

Bank stocks were generally down on Monday, with Morgan Stanley down 2.6 percent to $77.84 and Goldman Sachs down 1.2 percent to $323.37. Credit Suisse recently traded down 11 percent to $11.44 while Nomura is down 13.6 percent to $5.71 a share.

The Archegos fallout is the latest corporate crisis to put pressure on Credit Suisse. Earlier this month, the bank said it faces potential losses from the collapse of UK financial finance firm Greensill Capital, with which it ran $10 billion of investment funds.

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Glasses retailer Warby Parker eyeing IPO as soon as this year

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Hipster glasses retailer Warby Parker is eyeing an initial public offering.

The 11-year-old business, which started out as an e-tailer before rolling out some 130 stores across the US, is considering an IPO as early as this year, Bloomberg reported on Wednesday.

The New York-based company has amassed a huge customer following by offering less expensive prescription glasses. Warby Parker raised $120 million in its most recent funding round giving it a $3 billion valuation, according to the report.

“We’ve always explored various financing opportunities in both the debt and equity markets,” the company said in a statement. “To date, we have successfully and deliberately raised money within the private market on favorable terms and have plenty of cash on our balance sheet. We’ll continue to make strategic decisions in line with our commitment to sustainable growth.”

Founded by college buddies Dave Gilboa and Neil Blumenthal, who met at the Wharton School at the University of Pennsylvania, Warby Parker has attracted some large investors including the mutual fund company, T. Rowe Price.

It turned it first profit in 2018, Gilboa told The New York Times at the time.

Warby Parker co-founder Neil Blumenthal
Warby Parker co-founder Neil Blumenthal
Brian Ach/Getty Images

Customers can get prescriptions through their apps on their smartphones and use cameras to pick out frames. The company also has an optical lab in Sloatsburg, NY where it produces lenses.

While Warby Parker is not the least expensive option, it beats Costco in a recent comparison with Costco charging as little a $126 for a pair of prescription glasses compared with Warby Parker’s least expensive pair at $95.

“As consumer walk into a LensCrafters or Sunglass Hut, they see 50 different brands of glasses but don’t realize that all those brands are owned by the same company that owns the store that they’re standing in, that probably owns the vision insurance plan they’r using to pay for those glasses,” Gilboa said in a recent CNBC interview.

“And so, it’s no surprise that a lot of those glasses are marked up 10 to 20 times what they cost to manufacture,” he said.

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Dogecoin hits new high boosted by DogeDay hashtags

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Dogecoin prices hit an all-time high on Tuesday, with a market capitalization above $50 billion, after social media fans used hashtags to fuel a rally in the meme-based cryptocurrency.

An 8,000 percent price surge this year has seen Dogecoin, which was launched as a satirical critique of 2013′s cryptocurrency frenzy, overtake more widely-used cryptocurrencies like Tether to become the fifth-largest coin.

While Dogecoin, whose logo features a Shiba Inu dog at the center of the meme, a represents only a fraction of bitcoin’s $1 trillion value, it can be traded on crypto exchanges and more popular mainstream trading apps.

“The Doge rally represents an interesting convergence,” said Diana Biggs, CEO of crypto start-up Valour, after Dogecoin’s price soared by more than five-fold in the last week to a record 42 cents, according to CoinMarketCap.

“A meme coin created as a joke for early crypto adopters whose community found that kind of thing to be fun, with now a new generation of retail investors for whom memes are a native language,” Biggs added.

Dogecoin fans used the hashtags #DogeDay and #DogeDay420 to post memes, messages and videos on Twitter, Reddit and TikTok, referring to the informal April 20 holiday to celebrate cannabis which is marked by smoke-ins and street parties.

“GIMME THAT DOGECOIN LAMBO!!! #DogeDay” one tweeted, referring to the Lamborghini car popular in crypto culture.

Dogecoin’s rise has come amid a surge in online trading of stocks and crypto by retail investors, stuck at home with extra cash because of the COVID-19 pandemic. It has not coincided with a growth in usage of the coin for payments or in commerce.

The same trend has spurred a boom in usage of online trading apps like Robinhood, and also fueled the social-media driven rally in GameStop stock that pitted retail investors against hedge funds earlier this year.

“It’s an extension of the same phenomenon that has led Tesla stock to be valued well beyond fundamentals and more recently to the GME (GameStop) short squeeze,” said Ajit Tripathi, head of institutional business at decentralised finance startup Aave.

Like other cryptocurrencies, Dogecoin’s price is heavily influenced by social media users including Tesla chief Elon Musk, whose tweets on the cryptocurrency in February sent its price soaring over 60 percent.

“If this goes as planned and everybody including Mr. Musk go ahead and just pour money into Doge on April 20th all at once Doge will reach prices that originally were not even conceptual,” a TikTok user said in a video promoting the coin.



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Amazon is opening a beauty salon in London

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Amazon is opening a hair salon in London — its latest odd lurch into new businesses as the pandemic continues to fuel the e-commerce giant’s torrid growth.

The Amazon Salon, unveiled in a Tuesday blog post, will occupy a two-story, 1,500-square-foot space in Spitalfields, a trendy neighborhood in East London that is also home to Amazon’s UK headquarters, which houses about 5,000 employees.

Indeed, the new salon, which will be open seven days a week, initially will only cater to Amazon workers. Members of the public will be able to make bookings in “the coming weeks” by calling, emailing or visiting the salon, the company says.

“This will be an experiential venue where we showcase new products and technology,” Amazon said in a blog post on Tuesday, adding that there are no plans to open other salons.

That will include making Amazon’s Fire tablets available at each station, allowing customers to use augmented reality technology to see what they look like as a platinum blonde, brunette or with highlights, the company said.

The salon is located at Amazon’s UK headquarters, which houses about 5,000 employees.
The salon is located at Amazon’s UK headquarters, which houses about 5,000 employees.
Amazon

The salon will also test new “point-and-learn” technology, where customers can point at a product they are interested in on a display shelf and the relevant information, including brand videos and educational content, will appear on a display screen.

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