Morgan Stanley and Goldman Sachs’ roles in volatility of ViacomCBS raise

Morgan Stanley and Goldman Sachs, two of the firms at the center of the Archegos Capital Management unwinding, played a variety of roles before, during and after the margin call. That is raising questions about whether the firms should have had a compliance function to intervene in their potentially conflicting roles in the same stock. One of the key triggers that led to the unwinding of Archegos was a tepid market response for a multibillion-dollar ViacomCBS secondary offering last Wednesday. While certain bankers at Morgan Stanley and Goldman Sachs were pitching that deal to investors, some of their peers in the prime brokerage division were growing increasingly concerned about the risk profile of one of their clients, a family office called Archegos, which had large, leveraged exposure to ViacomCBS. Following a 23% decline by ViacomCBS amid the secondary offering, Goldman Sachs, Morgan Stanley and a slew of other banks across Wall Street, triggered a margin call on Archegos. This prompted the two giant investment banks to seize Archegos' assets, including billions of dollars' worth of ViacomCBS stock, and sell it off through heavily discounted block trades. The move created significant pressure on the B shares of ViacomCBS, which plummeted 27% on Friday and another 7% the following Monday. Still, the timing of the events is raising questions over who at the firms knew what and when, amid the demise of Archegos and the collateral damage in several stocks, including ViacomCBS. Goldman Sachs spokesperson Maeve Duvally said, "There are strong informational barriers between the parts of the firm that manage capital raising for corporate clients and our relationships with institutional investors." Morgan Stanley declined to comment."There's definitely the potential for a conflict," said Harvey Pitt, former chairman of the Securities and Exchange Commission. "The fact that if there were sufficient leverage issues raised that it could promote selling and selling pressure and indeed force the selling pressure, makes it very real that the potential for a conflict was always present."By March 22, ViacomCBS shares had surged more than 165% in 2021, closing above $100 per share. This marked a nearly 800% rise from its 2020 trough, almost exactly a year prior. The company sought to capitalize on its elevated share price to sell $3 billion worth of stock into the market; the underwriters hawking the stock included Morgan Stanley and JPMorgan as lead bookrunners, along with Citigroup, Goldman Sachs, Mizuho and others serving in a more passive capacity. Those banks faced a tepid response from the market, pricing 20 million Class B shares at $85 each and another 10 million convertible preferred shares at $100 each on March 24. The stock declined on news of the placement, and that move was one of the main catalysts that led to increased calls for collateral from Archegos, according to sources close to the matter.


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Article Link: https://www.cnbc.com/2021/04/01/viacomcbs-stock-sales-amid-archegos-debacle-raise-questions-for-banks.html


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