Oil, Global Stocks Fall as Investors Cut | Stock Market News Today


Global stocks, oil and cryptocurrencies fell, as investors grappled with the prospect of higher interest rates and disappointing results from popular consumer tech stocks.

Futures tied to the S&P 500 fell 0.4%, pointing to an extension of Thursday’s drop, when the index closed down 1.1%. Nasdaq-100 futures declined 0.7%, suggesting more losses for technology stocks. Dow Jones Industrial Average futures ticked down 0.1%. 

Shares in Asia-Pacific and Europe broadly retreated. The pan-continental Stoxx Europe 600 fell 1.2%, while China’s Shanghai Composite Index and Japan’s Nikkei 225 declined 0.9%. 

Japan’s Nikkei 225 index shed 0.9% Friday.



Photo:

behrouz mehri/Agence France-Presse/Getty Images

In off-hours trading,

Netflix

shares plunged over 20% after the company said it expected a slowdown in subscriber growth. Peloton rose 7.5%, recouping some losses after the stock tumbled nearly 24% Thursday on reports that the connected-fitness company was halting production. Its chief executive refuted these claims in a statement. 

“As we return to a more normal world, names like Peloton and Netflix being weaker or disappointing isn’t a surprise,” said Arun Sai, a multiasset strategist at Pictet Asset Management. “I think when the dust settles, we’ll have a reasonable set of numbers in Q4 earnings. Peloton and Netflix are more of a distraction than anything else.”

Investors’ increasing conviction that the Federal Reserve will have to raise interest rates several times this year to combat inflation has pressured stocks. Last week, Fed Chairman Jerome Powell called rapid inflation a “severe threat” to a full economy recovery, and data showed consumer prices soaring 7% on the year in December

This has hit growth stocks and put the Nasdaq in correction territory, as investors are dumping shares of unprofitable companies. Tensions between Russia and NATO are also weighing on market sentiment, investors said. The S&P 500 is down 3.9% this week, on track for the worst performance since Oct. 2020. 

“Geopolitical risk plays a role, repricing of [central bank] policy plays a role and the inflation mix in the sense of cost pressures. You put all those together and there is actually quite a change,” said Georgina Taylor, a multiasset fund manager at Invesco. “Risk premium for equities needs to go up.”

President Biden said on Wednesday that the U.S. is ready to unleash sanctions against Russia if President Vladimir Putin makes a move against Ukraine. Biden also laid out a possible diplomatic resolution. Photo: Susan Walsh/Associated Press

Investors’ bets on faster rate rises have driven up inflation-linked bond yields, seen as a benchmark for financing costs. The yield on the 10-year Treasury inflation-protected security rose as high as minus 0.526% Friday, the highest level since June 2020, before easing slightly to minus 0.536%. The yield on the benchmark 10-year Treasury note edged down to 1.792% from 1.833% Thursday.   

Cryptocurrencies tumbled, with bitcoin losing nearly 6.5% compared with its level at 5 p.m. ET Thursday. It traded below $38,300, the lowest level since August, before rising slightly to around $38,700. Ether fell 6.8%. 

Oil prices also declined. Global benchmark Brent crude fell 1.5%, trading at $87.03 a barrel, weighed down by a surprise increase in U.S. crude stockpiles, according to analysts at RBC Capital Markets. 

Data provider

IHS Markit,

oil services company

Schlumberger

and financial firms

Huntington Bancshares

and

Ally Financial

are set to report earnings Friday. 

Overseas, wind-power company

Siemens Gamesa Renewable Energy

fell 10% after it posted an operating loss and lowered its guidance, citing supply-chain constraints. Shares of some Chinese drugmakers surged after they were selected to help make cheaper versions of Merck’s Covid-19 pill.

BrightGene Bio-Medical Technology

rose 20% and Viva Biotech advanced 14%. 

Write to Dave Sebastian at [email protected] and Anna Hirtenstein at [email protected]

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China Evergrande Says Construction Has | Stock Market News Today


Troubled property developer

China Evergrande Group


EGRNF -10.55%

said construction work has resumed at more than 90% of its stalled residential projects, adding that it has picked up the pace of delivering apartments promised to home buyers across the country.

Evergrande,


EGRNF -10.55%

in a statement Sunday night, said more than 80% of its suppliers of materials and decorative services have “resumed cooperation,” and that it has signed thousands of new contracts with various suppliers. At the end of August, the developer disclosed that construction had been suspended at some projects after it fell behind on payments. And by October, hundreds of Evergrande’s unfinished developments were affected by work stoppages.

With just a few days to go before the end of 2021, Evergrande said it intends to deliver 39,000 homes in 115 projects to buyers across China in December. It compared that to its completion of fewer than 10,000 units in each of the preceding three months.

The world’s most indebted real-estate firm Evergrande has embarked on a social media campaign to show construction has resumed and says it’s doing whatever it takes to deliver homes. WSJ compares these posts with ones from upset buyers. Photo Composite: Emily Siu

In a post on social media Monday, Evergrande said apartment projects have been handed over in batches in 18 provinces and it released photos of completed buildings adorned with bright red decorations and people signing papers to take ownership of their homes.

Despite this, Evergrande still has many more commitments to fulfill and its debt crisis remains unresolved. The 25-year-old developer used to be one of the country’s largest by contracted sales and is on the hook to deliver units to more than one million people. Many buyers made large down payments on unfinished flats, expecting to take ownership of them in a few years.

Hui Ka Yan,

Evergrande’s founder and chairman, said that “under the care and guidance of governments at all levels,” as well as support from partners, financial institutions and other constituents, the developer has made progress in its commitments to homeowners.

He added that Evergrande would do whatever it takes to resume work and deliver homes and predicted that the firm will eventually be able to “resume sales, resume operations, and pay off debts.”

Hui Ka Yan, China Evergrande’s chairman, in Hong Kong in 2019.



Photo:

Paul Yeung/Bloomberg News

The company’s statement followed comments over the weekend from two Chinese regulators which said they would safeguard the rights of homeowners and keep the property sector stable. Beijing has been trying to prevent Evergrande’s debt crisis from hurting the many small businesses and ordinary citizens that the developer owes money and apartments to.

Wang Menghui,

head of China’s Ministry of Housing and Urban-Rural Development, said in an interview with the state-run Xinhua News Agency that the regulator will address the risks of some leading developers that fail to deliver projects on time, with the goal of “guaranteeing home deliveries, protecting people’s livelihoods and maintaining social stability.”

The People’s Bank of China separately said—as part of a wide-ranging statement on the economy—that it would protect the rights and interests of homeowners and promote the healthy development of the country’s real-estate market.

Evergrande, the world’s most indebted developer, has been struggling under the weight of roughly $300 billion in liabilities, including around $20 billion in international bonds. The developer has missed payment deadlines on some of its dollar bonds, setting the stage for a massive and complex restructuring. Major credit raters have declared it to be in default.

Earlier this month, the conglomerate sought help from the government of its home province, Guangdong. It has since set up a risk-management committee that includes representatives from several state-backed entities.

Evergrande recently said the committee is working to help contain its risks and will engage with its creditors. Some international bondholders, however, have said there has been little communication from the company so far, the Journal reported last week.

The company’s Hong Kong-listed shares have plunged in value this year to historic lows and its dollar bonds are trading at deeply distressed levels. Markets in Hong Kong were closed Monday for a public holiday.

Write to Anniek Bao at [email protected]

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UBS Profit Jumps on Wealth Management Boom | Sidnaz Blog


A pedestrian passes a UBS branch in Zurich earlier this month.



Photo:

Stefan Wermuth/Bloomberg News

UBS Group AG


UBS -2.22%

posted better-than-expected second-quarter earnings from strong client activity in the world’s buoyant markets.

On Tuesday, Switzerland’s biggest bank said net profit jumped to $2 billion from $1.23 billion a year earlier, outpacing analyst expectations of $1.34 billion. It said wealth clients traded more, pushing transaction revenues 16% higher from a year earlier, and added that recurring fees were 30% higher on their existing trades and products.

At UBS’s investment bank, deal advice for mergers and acquisitions and other corporate transactions pushed global banking revenue 68% higher, helping to offset a 14% decline in market-trading income.

UBS said markets revenue would have been flat but it took an additional $87 million hit the quarter from the late March default by family office Archegos Capital Management. UBS was one of about a half-dozen banks that lent to Archegos to take large, concentrated positions in stocks. The Swiss bank said in April that it had lost $861 million when exiting the trades, most of it booked in the first quarter.

UBS helps the world’s rich manage their wealth and competes with Wall Street banks in investment banking.

On Tuesday, Chief Executive

Ralph Hamers

said wealth clients are investing more with the bank in private markets and in separately managed accounts, adding that they are also freeing up liquidity as a buffer against unforeseen events by refinancing assets and borrowing from the bank.

He said momentum is on UBS’s side and that its strategic choices are paying off. The bank refocused around wealth management a decade ago and pared back its investment bank. It has been less in the limelight than its smaller domestic rival,

Credit Suisse

Group AG, which lost more than $5 billion from the Archegos affair this year.

Write to Margot Patrick at [email protected]

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The Bonds That Cried Major Default Risk | Sidnaz Blog


The villagers in “The Boy Who Cried Wolf,” bored of their shepherd boy’s constant false alarms, refuse to come to his aid when a wolf finally does appear. There may be a lesson in the fable for investors in Chinese property giant Evergrande and the country’s real-estate market more broadly.

Heavily leveraged Evergrande is in the midst of yet another financial squeeze. The company announced Sunday and Monday that it has recently sold almost $1 billion of holdings in two companies—internet services firm HengTen Networks and smaller real-estate developer China Calxon. Fitch Ratings cut Evergrande’s credit rating Tuesday from B+ to B, noting the company’s seemingly limited access to capital markets and growing dependence on less stable shadow-banking loans.

The current wobble has been unfolding for three weeks: It began when regulators started examining the relationship between Evergrande and Shengjing Bank, a regional lender in which the property developer has built a large stake.

Evergrande’s March 2022 bond currently yields a little over 20%, up from as low as 8.6% in late May. And the company’s share price is down almost 30% year-to-date, making it one of the few companies anywhere trading at the depressed levels of March 2020.

An Evergrande building in Huai’an, Jiangsu province.



Photo:

SIPA Asia via ZUMA Press

Close watchers of Evergrande can rightly say that it is not the company’s first financial tremor. Nor is it its second or third. Spikes in the company’s bond yields are relatively common. Optimists note that after a $1.5 billion bond maturing on June 28, it has no offshore bonds due for the rest of the year.

But there are many risks for Evergrande outside of what is technically recognized as debt. This month the company said it would repay a small amount of overdue commercial acceptance bills, a form of short-term IOUs on which the firm is heavily reliant. The company’s accounts payable, the balance sheet category that covers those liabilities, ran to about $95 billion at the end of 2020. That has more than tripled in five years.

The company’s 2020 results also make clear that the amount it owes to home buyers who’ve paid large deposits for unbuilt apartments rose rapidly in 2020. Fitch notes that while contracted sales have been rising, average selling prices have fallen, dropping 13% in 2020 and 7% in 2021 so far. That boosts cash inflows in the short term, but means even greater obligations and less money to pay for them in the long term.

And unlike the company’s September 2020 squeeze, when bond yields surged over concerns regarding its relationship with a handful of strategic investors, debts owed to thousands of small businesses and households can’t be so easily extended.

The bond market has told many tall tales of imminent defaults for Evergrande, and none have materialized. Perhaps these latest rumblings will come to nothing—but that doesn’t mean the wolf won’t eventually get his dinner.

Write to Mike Bird at [email protected]

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South Korea’s Answer to Robinhood and Venmo Lands a $7 Billion | Sidnaz Blog


A South Korean company whose app lets users transfer money, take out loans, trade stocks and check their credit scores has raised funds at a valuation of more than $7 billion, making it one of the world’s most valuable financial-technology startups.

Viva Republica Inc., which operates the multifunction app Toss, said Wednesday it completed a round of fundraising worth 460 billion Korean won, the equivalent of $406 million, with investors including Alkeon Capital Management, Altos Ventures and Greyhound Capital.

The deal highlights how South Korea has incubated numerous unicorns, or private companies worth more than $1 billion, despite a domestic market of fewer than 52 million consumers.

Toss has also benefited from a supportive government stance—in contrast with China where fintech giant Ant Group Co. and smaller rivals have faced intensifying regulatory scrutiny.

In a statement, Viva Republica said it is valued at 8.2 trillion won, or about $7.2 billion, including the new money, which is more than twice its worth a year ago. A recent tally of unicorns by research firm CB Insights showed only 10 such startups world-wide focusing on finance that were worth $7 billion or more, although that list doesn’t include Ant, and some of the largest fintech startups on that list, like Stripe and Klarna, are worth considerably more than Viva Republica.

Global venture-capital investors are starting to note the growth potential of South Korean tech companies, Viva Republica co-founder and Chief Executive Seunggun Lee told The Wall Street Journal in a recent interview. Mr. Lee said such investors were overcoming earlier doubts about opportunities in a relatively small market.

“They find the growth is unparalleled in terms of user base and revenue,” he said. “In terms of the opportunity and market size, it’s massive,” he said, citing factors like dense urban areas and widespread smartphone usage as helping startups to grow.

Viva Republica employees work at the company’s office in Seoul last year.



Photo:

Jean Chung/Bloomberg News

South Korean startups have been raising funds at a brisk pace. They raised $5.1 billion through more than 800 deals last year, and another $2.4 billion this year through June 11, according to figures from Preqin, a data provider.

In another symbol of the industry’s maturity, in March, local e-commerce giant

Coupang Inc.

made its debut on the New York Stock Exchange. After a first-day trading surge the company was valued at $88 billion, although it has since pared some of those gains.

Mr. Lee said a U.S. initial public offering was an option for Viva Republica. The company plans to follow this fundraising with a subsequent round of pre-IPO funding in the first half of next year, according to a spokesman, who added that a listing could happen as early as 2023.

Toss has capitalized on a boom in stock trading by individual investors in South Korea. The company debuted its investment platform, Toss Securities, in March, and said it drew two million users in a month. In contrast, U.S. counterpart Robinhood Markets Inc. reached the same milestone in 2017, about two years after it began operating, though individual investors were less of a force in markets then.

Toss Securities now has 3.5 million accounts, Mr. Lee said, and his company is preparing to launch a bank.

Write to Frances Yoon at [email protected]

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Market-Beating China Fund Manager Favors Scooters and Spicy Sauce | Sidnaz Blog


HONG KONG—Michelle Leung is used to standing out, as a China-focused stock picker who doesn’t follow the crowd and as a top female professional in the male-dominated fund-management industry.

She is the founder of Xingtai Capital Management Ltd., a firm with offices in Hong Kong and Shanghai that oversees around $600 million in assets and counts institutions from the U.S., Europe and Asia as investors.

As of May, the firm’s flagship Xingtai China Fund generated an annualized 33.9% return in the past five years, net of fees. That is more than double the 14.5% return on its benchmark, MSCI Inc.’s China index.

The performance gap is even wider this year. For the first five months of 2021, the fund’s return was 16.3%, compared with MSCI China’s 1.7%.

Ms. Leung has a somewhat unconventional approach to stock selection. Xingtai avoids companies that have yet to turn a profit, putting swaths of China’s popular technology sector off-limits. The fund also doesn’t hold stocks of the country’s internet giants, including Alibaba Group Holding Ltd. and

Tencent Holdings Ltd.

Instead, it looks for stocks of companies with a solid earnings record, fast prospective growth and modest valuations. “We like stories of a niche leader, a first mover, or a competitive dynamic where the business model is defensive,” Ms. Leung said.

In practice, that often means discovering stocks not on the radar of large investors and that cater to China’s vast and increasingly prosperous middle class. “We love domestic Chinese brands,” Ms. Leung said.

Ms. Leung, having breakfast with her children at home in Hong Kong this month, said some prospective clients ask who is really in charge of the investment firm she founded.

Last year, for example, a bet on e-scooter maker

Yadea Group Holdings Ltd.

paid off handsomely. The stock rose more than sevenfold after China tightened regulations on the sector, squeezing out smaller players.

Other hits include

Yihai International Holding Ltd.

, a maker of spicy sauces for hot pot. Many other investors initially shunned the company for fear that it was too reliant on sister company

Haidilao International Holding Ltd.

, a restaurant chain widely popular among Chinese diners. Xingtai was also quick to see the potential in the property-management companies that have been listed by many of China’s big real-estate developers

Despite her fund’s consistent outperformance, Ms. Leung said it has sometimes been an uphill battle, with some prospective clients asking who is really in charge.

“Our industry has evolved in such a way that most of the founders are male. So it’s so unusual to see a female that the counterparties are just not believing it, not comfortable with it or not expecting it,” she said in an interview at her offices in Hong Kong’s downtown Central district.

“I’ve faced a lot of going into a room or getting on a call and the other side’s being very dismissive: ‘So who actually runs this place? Not you, is it?’”

Ms. Leung, the daughter of two academics, grew up in Hong Kong speaking Cantonese and English, while her Chinese father and European mother spoke German at home. She said that being raised multilingual and bicultural helped her operate in both Western and Chinese contexts. Ms. Leung is now a parent to four school-age children.

She achieved some conventional financial-industry milestones—including a stint at

Goldman Sachs Group Inc.

and a Harvard MBA. Ms. Leung was also a United Nations staffer at the start of her career and served on missions in Cambodia and South Africa. “I’ve had a very diverse experience, which I think helps in many ways to prepare yourself for the challenges of starting a business,” she said.

Ms. Leung said Xingtai’s stance was informed by investing gurus such as Benjamin Graham and by her own experience of doing deals in China. In the early 2000s, she served as the chief operating officer of

Tom Group Ltd.

, an internet portal business backed by tycoon

Li Ka-shing’s

Hutchison Whampoa. She later worked in the buyout industry.

As a result, Xingtai applies a more hands-on, private-equity style approach to investing in listed companies, checking in with management regularly and conducting on-the-ground channel checks with suppliers and customers, to run the slide rule over potential investments.

“A more cynical, questioning mind-set—not just following the herd, not just piling in—sometimes in the long run gets you better returns,” she said.

Ms. Leung said that Xingtai isn’t contrarian but that it does want to be early in identifying good companies. It aims to increase assets under management to $1 billion by the end of this year.

Ms. Leung, in her Hong Kong office this month, said that Xingtai isn’t contrarian but that it does want to be early in picking up on good companies.

The fund started in 2014, when a lot of hedge-fund managers were using what are known as long-short strategies in an attempt to make money by picking Chinese stocks no matter what happened to the wider market. Xingtai’s fund is long only, meaning it doesn’t go short, or bet that stocks will fall in value.

Not long after Xingtai raised $30 million of seed capital, China’s domestic A-share market for stocks trading in Shanghai and Shenzhen crashed. The meltdown extended into a two-year rout where authorities banned the trading of index futures and new stock listings were suspended.

Although Xingtai weathered the downturn and outperformed the market, some of its initial investors were put off by the volatility intrinsic in Chinese stocks and redeemed their investments after markets recovered.

Coming out of the storm in 2017, Xingtai stuck to its strategy. Meanwhile, big global index compilers such as MSCI started to increase the China exposure of their benchmarks. Now a long-only, China-concentrated strategy is no longer unorthodox, but popular.

Despite more investment firms adopting the same approach, Ms. Leung said Xingtai retains advantages that are hard to replicate. The firm scouts for Chinese stock bargains around the world, be it firms listed in Hong Kong, mainland China or the U.S. It tries to beat what is often a momentum-driven market by spotting unloved securities and by looking at least three years out.

Xingtai’s management team and investing teams are predominantly female, apart from a few exceptions including Shanghai-based Chief Investment Officer Bingchao Cao. Such an outcome was achieved purely by merit, according to Ms. Leung. Going forward, she plans to do more to help redress the industry’s gender imbalance, such as engaging more asset allocators with programs for female founders.

“There’s not a lot of support for female fund managers,” Ms. Leung said. “You have more to prove as a woman. And that gives you more determination to succeed.”

Write to Jing Yang at [email protected] and Quentin Webb at [email protected]

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Ant Wins China’s Approval to Set Up Consumer-Finance Company | Sidnaz Blog


Ant Group’s headquarters in Hangzhou, China.



Photo:

Qilai Shen/Bloomberg News

China’s banking and insurance regulator said Thursday that it had approved Ant Group’s application to set up a consumer-finance company, the first regulatory milestone in the fintech giant’s restructuring of its business.

Ant will hold a 50% stake in the new entity, registered in the southwestern municipality of Chongqing, with the rest held by six other shareholders. The company, Chongqing Ant Consumer Finance Co., is licensed to conduct consumer lending and other operations.

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Canadian Railroad Plays Russian Roulette | Sidnaz Blog


Kansas City Southern last week deemed Canadian National’s roughly $325-a-share bid to be superior to one it had accepted from rival Canadian Pacific.



Photo:

Whitney Curtis/Bloomberg News

Canadian National is steaming full speed ahead toward a dangerous junction. The market is starting to wonder whether it will lose its nerve.

Kansas City Southern


KSU -0.36%

shares hit an all-time high above $315 a share last Thursday after the smallest U.S. Class I railroad deemed Canadian National’s roughly $325-a-share bid to be superior to the one it had accepted from rival

Canadian Pacific.


CP -0.98%

Since then, doubts have crept in and the shares have retreated to $295. The latest wrinkle is a strongly worded letter Tuesday from

Chris Hohn

and Ben Walker of TCI Fund Management, a large shareholder in both Canadian railroads but not—unfortunately for them—their U.S. target.

Messrs. Hohn and Walker want Canadian National to abandon its plan to form a voting trust—a vehicle it would use to buy KCS before gaining approval from the Surface Transportation Board late next year, if all goes to plan. Without that structure, however, KCS’s board would almost certainly go back to the original bid from Canadian Pacific, since its shareholders would have no certainty of getting paid.

In effect, TCI is telling Canadian National not to risk rejection, and it has a good point—though also a self-serving one as Canadian Pacific’s largest shareholder. While it is probably a slight exaggeration to say that setting up the trust but not getting a deal approved could wipe out nearly all of Canadian National’s shareholders’ equity, it certainly could vaporize a large chunk of it. The difference between what KCS’s equity was worth before Canadian Pacific’s bid and what Canadian National will pay, plus compensation for the $700 million termination fee, is about $14 billion. An outright rejection of the deal by regulators could force the trust to sell KCS in a few years at a big loss. And if it doesn’t even get to that stage because U.S. regulators don’t approve its voting trust, then it would still be out $1.7 billion—the initial termination fee plus an additional reverse breakup fee.

Canadian Pacific, meanwhile, may win by losing. Its U.S.-traded shares also hit an all-time high last Thursday when KCS backed out of its agreement. If Canadian National stands down or if it pushes ahead and doesn’t have its voting trust approved, then Canadian Pacific stands a better chance of approval since the Surface Transportation Board granted a waiver to more stringent post-2001 merger rules due to Canadian Pacific’s smaller size. KCS would have no other viable industry bidders, since any other combination would result in an even larger merger than the one just rejected.

And then there is the messy possibility of Canadian National nearing the finish line and then getting stuck with the huge loss TCI warned of. Getting sidetracked doesn’t mean Canadian Pacific won’t come out ahead of its rival.

Write to Spencer Jakab at [email protected]

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Credit Suisse Risk Chief Won’t Stand for Re-Election After | Sidnaz Blog


Credit Suisse’s headquarters in Zurich in March.



Photo:

arnd wiegmann/Reuters

Credit Suisse Group AG


CS -0.37%

withdrew from re-election the head of its board’s risk committee after a protest vote by investors over the bank’s $5.5 billion loss from Archegos Capital Management.

Hours before the bank’s annual meeting Friday, it said

Andreas Gottschling

wouldn’t stand for reappointment. He was targeted as a symbol of Credit Suisse’s risk failures by some of its biggest investors, who had said they would vote against him.

Archegos, the family office of

Bill Hwang,

wreaked havoc across Wall Street when heavily leveraged bets it made on a small collection of stocks unraveled in March, triggering huge losses at some of its lenders. Credit Suisse lent more to Archegos relative to its size than other banks and was one of the last to exit from its stock positions, The Wall Street Journal previously reported.

Last week, Credit Suisse had to raise fresh capital to shore up its balance sheet and Swiss regulators said they started enforcement proceedings over possible risk-management shortcomings. Swiss enforcement proceedings are separately under way into the bank’s handling of another now-collapsed client, Greensill Capital. The U.K. financing firm also failed in March and Credit Suisse is liquidating $10 billion in investment funds that the companies ran together.

Mr. Gottschling joined the board in 2017. He previously held the top risk job at Austria’s

Erste Group Bank AG

and worked at McKinsey & Co. and

Deutsche Bank AG

.

Write to Margot Patrick at [email protected]

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UBS Takes Surprise $774 Million Archegos Hit | Sidnaz Blog


The UBS logo in Frankfurt last year.



Photo:

mauritz antin/Shutterstock

UBS Group AG


UBS 0.33%

said it lost $774 million from the implosion last month of Archegos Capital Management, a bigger hit than analysts expected, deepening the damage caused by the fund.

Switzerland’s biggest bank by assets said it lost the money from closing out a U.S. fund’s trades. It took $434 million off net profit in the quarter, which overall was up 14% at $1.82 billion because of a surge in investment banking revenue from strong stock markets. UBS said it has fully exited the fund’s positions now and the additional losses in the second quarter are immaterial.

UBS Chief Executive

Ralph Hamers,

in the job since November, said the bank is taking the incident very seriously, is disappointed and is reviewing its risk management systems to avoid such situations. He said it hadn’t stopped UBS from improving its capital position in the quarter and that the investment bank was able to bear the loss.

Archegos, the family office of

Bill Hwang,

wreaked havoc across Wall Street when it couldn’t meet margin calls in March.

Credit Suisse

lost $5.5 billion, Nomura lost around $2 billion,

Morgan Stanley

lost $911 million and other banks have also reported losses. UBS was one of about a half-dozen banks that lent to Archegos to take large, concentrated positions in stocks. Some of the positions reversed course in March and banks lost money selling the shares.

Write to Margot Patrick at [email protected]

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