Archegos Capital Management quietly amassed a stake in Deutsche Bank after its founder Bill Hwang forged ties with the German lender’s leaders before the family office imploded last year, the Financial Times can reveal.
The collapse of New York-based Archegos 12 months ago left its prime brokers, which included Credit Suisse, Nomura and Morgan Stanley, with a combined $10bn in losses after the investment firm’s highly leveraged bets on US media and technology shares unravelled.
Deutsche was also among Archegos’s lenders but emerged unscathed from the firm’s failure and was even able to hand back some of the collateral it had taken to underpin the loans to the family office.
Archegos began building a stake in Deutsche in 2019 as Hwang, a former hedge fund manager, met several times with the bank’s chief executive, Christian Sewing, and at least once with chair Paul Achleitner, said three people familiar with the matter.
The meetings, which included several at the Manhattan headquarters of Archegos and one at the high-end restaurant Jean-Georges overlooking Central Park, started in late 2018 when Deutsche was under intense pressure to revive a languishing share price and overhaul its strategy.
The interactions between Germany’s biggest bank and Archegos were described as a Deutsche “charm offensive” by one person familiar with the family office.
A person familiar with the bank’s view contests that account, saying Archegos took the lead in developing the relationship.
The stake, which Archegos held via derivatives, was enough to make Hwang’s firm a significant shareholder in the bank. According to one person with direct knowledge of the family office, the holding was close to 2 per cent and held right up until Archegos failed.
People familiar with Deutsche’s view say the stake peaked at just under 1 per cent and had been sold by the end of 2020.
A stake of about 1 per cent today would put an investor among Deutsche’s 15 largest, according to Bloomberg data. Archegos was not required to disclose the stake as it was below the 3 per cent threshold stipulated by German securities law.
Deutsche said in a statement to the Financial Times that “meeting with potential investors and clients is a normal part of business”, and declined to comment further on its interactions with Archegos and Hwang.
The bank’s clean exit from its Archegos loan exposure was unrelated to the relationship Hwang had formed with the bank’s senior executives, people familiar with the matter said.
Instead, Deutsche had in early 2021 grown wary about its exposure and urged Archegos to broaden the collateral it had pledged, pushing for it to include a wider selection of stocks from different markets. In the months before Archegos failed, Deutsche also tightened the terms of its lending, said people familiar with the matter.
When Hwang received a large margin call from Deutsche as Archegos began to buckle last year, he called up a senior manager but the bank did not reconsider, said people familiar with the matter.
“We were able to significantly de-risk our exposure to Archegos without incurring any losses,” Deutsche said in its statement, pointing to the fact that, unlike some other lenders, it increased the quality and amount of collateral it demanded from the firm.
The initial contact between Hwang and Deutsche’s top management was brokered by Hakan Wohlin, the bank’s former head of debt origination who left the lender in 2015.
Wohlin, who remained on friendly terms with Achleitner and Sewing and now runs an advisory firm in New York, was hired by Hwang as a senior adviser in late 2019 after setting up the contact.
He attended the meeting at Jean-Georges, and subsequently sent Sewing a text message, a copy of which was seen by the Financial Times, noting that Archegos “bought some more shares after our lunch. But have not verified amount with Bill.” The restaurant was so popular at the US investment firm it was known internally as the “Archegos cafeteria”.
The meetings show the close ties Hwang forged with Deutsche’s top brass. Besides Sewing and Achleitner, Deutsche’s then head of strategy and now Asia chief Alexander von zur Mühlen, and James Rivett, then head of investor relations, took part in some meetings. However, on one occasion, Sewing was the only Deutsche representative who attended, according to people familiar with the matter.
Lawyers for Hwang and Archegos declined to comment.
Hwang’s dealings with Deutsche stretch back to at least 2008 when he was running his hedge fund Tiger Asia. In 2012, Hwang pleaded guilty on behalf of Tiger Asia to charges of wire fraud brought by the US Department of Justice.
Wohlin was one of several Deutsche executives accused of “dishonesty” in a lawsuit filed in 2016 by Vestia, a Dutch housing association and a profitable client for the bank that was brought to the brink of failure through derivatives trades. The lawsuit related to payments made to a middleman who was convicted of bribery in 2018.
Wohlin, who was a witness not a defendant in the case, denied the allegations, as did Deutsche. The bank reached a €175mn settlement with Vestia in 2019.
Declining to comment on the specific interactions between Archegos and Deutsche, Wohlin said: “I believed then, as I do now, that Deutsche Bank presented an interesting long-term opportunity. Archegos was a well-known long-term value investor — as such a relevant investor to speak with.”
Deutsche’s lending to Archegos raised the possibility of a conflict of interest given the family office was also a sizeable shareholder, but German banking law did not forbid it from doing so.
Under the law, only loans to shareholders with at least 10 per cent of the equity need to satisfy special conditions. The bank’s own rules require extra scrutiny for borrowers that own at least 3 per cent of its shares, people familiar with the matter said, adding Deutsche did not accept its own stock as collateral from Archegos.
Additional reporting by Kaye Wiggins in London and Eric Platt in New York.
Copyright The Financial Times Limited 2022
