Archegos banks tighten lending guidelines; Galaxy Digital’s $1.2B bitcoin deal

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Better late than never

Banks across Wall Street—including Credit Suisse, Morgan Stanley and UBS—"are looking to tighten the lending terms of some of their hedge-fund clients on the heels of Archegos Capital Management’s collapse,” The Wall Street Journal reported. The banks “are reviewing their businesses that offer financing to hedge funds and family offices for potential vulnerabilities to safeguard against another Archegos-style event.”

The collapse of Archegos in March “triggered one of the biggest sudden trading losses in Wall Street history. Wall Street’s losses—$5.5 billion for Credit Suisse alone but also affecting Nomura Holdings, Morgan Stanley and UBS—are particularly surprising because prime-brokerage and swaps desks demand collateral in return for their lending.”

Meanwhile, Archegos “is preparing for insolvency, triggered by banks’ attempts to recoup some of the $10 billion they lost on its soured bets. The family office run by Bill Hwang has hired restructuring advisers to assess potential legal claims from banks and to plan for a possible winding down of its operations,” the Financial Times reported.

“Lenders are also investigating whether Hwang’s family office withheld or provided incorrect information about the scale of its borrowing from other prime brokers. UBS is among the banks examining whether it was ‘fraudulently induced’ to do business with Archegos.”

Securities and Exchange Commission Chairman Gary Gensler is expected to tell the House Financial Services Committee on Thursday that his agency “will study regulatory changes” in response to the blowup of Archegos, the Journal said.

Wall Street Journal

Galaxy quest

“Bitcoin-focused Galaxy Digital has agreed to buy BitGo Inc. for $1.2 billion in cash and stock, the first $1 billion deal in the cryptocurrency industry” and “the largest acquisition to date in the crypto sector. The acquisition will make Galaxy Digital a crypto-focused financial-services firm with more than $40 billion in assets under custody.”

“The BitGo deal is aimed at making Galaxy Digital a major player in the competition to attract institutional and individual investors, Galaxy founder and CEO Michael Novogratz said. That means not just going up against other crypto startups, but after traditional banks as well. The combined company will offer an array of products and services, including trading, custody and asset management, investment banking, prime lending, tax services and even a mining operation, aimed mainly at institutional investors.”

Habit forming

PayPal “said it is now expecting total payment volume to grow by about 30% this year, up from its prior guidance of the high-20% range. That means the company’s volume growth would keep pace with what it experienced during an explosion of digital commerce during the pandemic. Last year’s record volume growth rate was 31%. PayPal is now predicting it will add as many as 55 million net new active users in 2021, up from a previous forecast of 50 million.”

“We believe the shift in consumer digital behavior will remain essentially unchanged in a post-Covid world,” CEO Dan Schulman told analysts.

Quotable

“In order for crypto to become this revolutionary transformation, you’re going to need bigger companies that are going to knock heads against the bigger businesses.” — Galaxy Digital founder and CEO Michael Novogratz, following his firm’s $1.2 billion deal to acquire BitGo.