Two of the world's biggest investment banks have warned their profits are likely to be severely affected by a crisis at a US hedge fund.
Nomura and Credit Suisse were among banks providing prime brokerage services to Archegos, which was founded by former hedge fund manager Bill Hwang. Both plunged more than 15%.
Both have been hit by problems at hedge fund Archegos, which led to the sale of billions of pounds of shares on Friday.
Hedge funds make money buying and selling shares. It is thought that Archegos made some large investments in certain companies that started to go wrong, and its backers then insisted it raise money quickly.
The warning sent shares in both banks tumbling, with Nomura closing 16 per cent lower in Tokyo, their worst one-day fall. Credit Suisse shares sank 13.8 per cent, their steepest decline since the pandemic-induced turmoil in March 2020.
While Credit Suisse and Nomura shares were hit hardest, other banks were also on the back foot, with Morgan Stanley stock falling 4 per cent.
Credit Suisse's fortunes are already facing a hit from its lending to Greensill Capital, the finance firm whose collapse has put at risk the future of the UK's Liberty Steel.
In a statement issued on Monday, Credit Suisse said: "A significant US-based hedge fund defaulted on margin calls made last week by Credit Suisse and certain other banks.
"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.
"While at this time it is premature to quantify the exact size of the loss resulting from this exit, it could be highly significant and material to our first quarter results."
Nomura said it was evaluating the extent of the potential losses, adding that its estimated claim against the unnamed client was about $2bn.
Archegos is a family office that manages the wealth of Hwang, a “Tiger cub” alumnus of Julian Robertson’s legendary Tiger Management hedge fund. It had about $10bn of assets last week, according to prime brokers. New York-based Hwang previously ran the Tiger Asia hedge fund, but he returned cash to investors in 2012 when he admitted to wire fraud relating to Chinese bank stocks.