Some Big Banks Suddenly Lose Big Where They’ve Won Big: Stock Inflation

March 29 , 2021 (EIRNS)—Since Friday, March 26 two of the biggest international “primary dealer” banks have announced they’ve suffered losses in the billions, while others have kept as “unnamed” as typical journalists’ sources. Credit Suisse said that it “and other banks” had had “highly significant losses”; Nomura Holdings estimated it had just lost $2 billion. Morgan Stanley and Citigroup announced they’d escaped the little implosion unscathed, but Goldman Sachs would say nothing. As to contagion, from this episode of sudden reverse leverage in an environment of furious worldwide asset inflation, nothing can be said yet except “remember Greensill Capital” a week or so ago (Credit Suisse certainly does), and “remember Gamestop,” the episode of just over one month ago.

What happened is that all these banks were providing “leveraged loans” to hedge funds speculating in stock swaps and other stock derivatives trades, particularly in Internet and tech stocks and entertainment names like ViacomCBS, and particularly in Chinese tech stocks like Ten Cent, GSX and Baidu. One hedge fund, at least, New York-based Archegos Capital Management, missed a bunch of margin calls late last week and then had to liquidate, according to CNBC’s report, $20 billion in holdings.

Possibly involved is an ongoing wave of bankruptcies of highly leveraged SMEs in China, apparently deliberately brought about by financial regulators in Beijing.

But very definitely involved is the characteristic practice of the London- and Wall Street-centered banks in the past 18 months of QE: lending and buying into speculation in stock and bond bubbles.