Morgan Stanley had losses of $ 911 million in the first quarter related to the fall of the Archegos fund

Morgan Stanley posted box office results during the first quarter, but a major brokerage client cost the firm nearly $ 1 billion.

The firm had a loss of $ 644 million for a “credit event” for that customer, as well as $ 267 million in related business losses, the New York-based bank said Friday in results that went easily exceed quarter expectations.

This client was Archegos of Bill Hwang, according to a person with direct knowledge of the matter, who added that the bank had no further exposure to the collapse of the fund.

During his scheduled call with analysts to discuss the quarter, Morgan Stanley CEO James Gorman confirmed that the client was Archegos and said the fund owed him $ 644 million after its merger in late March. .

“We liquidated some very large individual stock positions through a series of block sales that culminated on Sunday, March 28 night,” Gorman said. “This resulted in a net loss of $ 644 million, which represents the amount the customer owed us for the transactions he did not pay us.”

He added: “Subsequently, we made a management decision to completely overthrow the rest of the short and long positions,” Gorman said. “We decided we would get out of the risk as quickly as possible, and in doing so we caused an incremental loss of $ 267 million. I think that decision is necessary and the money well spent.”

At least part of Archegos’ loss was motivated by the fact that Morgan Stanley had been a subscriber to ViacomCBS shares the previous week, so it suspended the sale of a block of the company’s shares until Sunday. which caused the bank to sell later than others, Gorman said.

Later, an analyst asked Gorman if the episode would change his approach to risk management in the core brokerage business.

“I think for sure we will be very attentive to family office type relationships, where they are very concentrated and have several major brokers and frankly the transparency and lack of disclosure related to these institutions is different from hedge fund institutions” . Gorman said. “It’s something I’m sure the SEC will study and it’s probably good for the entire industry.”