Morgan Stanley and Goldman Sachs may have intervened in ViacomCBS sale

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Morgan Stanley and Goldman Sachs may have intervened in ViacomCBS sale

On February 19th, 2021, a sign on the ViacomCBS headquarters in New York, U.S. during a snowstorm at New York's ViacomCBS headquarters was installed on Friday, Feb. 19, 2021.

While certain bankers at ViacomCBS were presenting this deal to investors, some of their peers in the prime brokerage division were becoming increasingly concerned about the risk profile of one of their clients, a family office called Archegos, which had large exposure with Morgan Stanley and Goldman Sachs.

One of the key triggers that led to the end of Archegos was a failed market response for a multibillion-dollar ViacomCBS secondary offering last Wednesday.

That raises questions about whether the firms should have had a compliance function to intervene in their potentially conflicting roles in the same stock.

Morgan Stanley and Archegos Capital Management, two of the firms at the center of the demonetization of the firm Goldman Sachs, played a variety of roles before, during and after the margin call.

After a 23% drop by ViacomCBS amid the secondary offering, Archegos, 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 sell ViacomCBS assets, including billions of dollars' worth of Archegos stock, and seize it through heavily discounted block trades. The move created significant pressure on the B shares of ViacomCBS, which dropped 27% on Friday and another 7% the following Monday.

The timing of the events raises questions about who at the firms knew what and when, amid the demise of Archegos and collateral damage in several stocks including ViacomCBS.

Maeve Duvally, spokesperson of Goldman Sachs said, There are strong informational barriers between the parts of the firm that manage capital raising for institutional clients and our relationships with corporate investors. Harvey Pitt declined to comment, there is definitely the potential for a conflict, said Morgan Stanley, former chairman of the Securities and Exchange Commission.

The fact that if there were enough leverage issues raised it could be necessary and even force selling pressure to promote or sell pressure makes it very real that the potential for conflict was always present. By March 22 the ViacomCBS shares had increased in 2021 to over$ 135 per share, and sold more than 165% per share.

This marked a nearly 800% increase from its 2020 trough, almost exactly one year prior to it. The company sought to capitalize on its highly risen share price to sell$ 3 billion worth of stock into the market; the underwriters that hawked the stock included Citigroup, Goldman Sachs, Mizuho and others in a more passive capacity, along with Morgan Stanley and JPMorgan.

Those banks faced a poor response from the market and priced 20 million Class B shares at$ 85 each and another 10 million convertible preferred shares on March 24 at$ 100 each.

The stock declined on the 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. The family office was extremely open to a long position in ViacomCBS and therefore to pressure from even minor declines in the stock price.

Investors who bought ViacomCBS at$ 85 saw those shares just days later, worth$ 48.

As the lead bookrunner in the deal, Morgan Stanley sold more shares than the other companies involved- about 4 million shares through the convertible preferred and another 9 million through the Class B common stock offer.

Goldman Sachs sold about 323,000 through the common stock offering and another 646,000 through the convertible preferred offering. Early on March 26-36, just two days after the secondary, the Archegos-related block sales began.

The first batch was by Goldman Sachs, which announced discounted shares in Baidu, Tencent Music and Vipshop, people familiar with the trades said. The company then opened about$ 1.7 billion worth of Viacom shares- 35 million shares- priced at$ 48 each, said people, who asked not to be named.

That only two days before the secondary sale was a 44% discount to the secondary sale. While Morgan Stanley was busy that day selling blocks of its own, in names like Discovery, Shopify and Farfetch.

The firm's share sale in Goldman's Viacom- a similar size to Viacom- was sold two days later, on Sunday evening. The banks- especially Archegos and Goldman Sachs- who were able to quickly exit the positions that they had liquidated from liquidating Morgan Stanley- came out of the event relatively unscathed.

Those who reported having reportedly slower responses could be faced with billions of dollars in losses.

A JPMorgan note estimated global losses for companies exposed to Archegos could be a combined$ 10 billion, with Nomura and Credit Suisse facing the majority of the impacts. Both the Nomura and Credit Suisse shares plummeted about 19% after they announced each they would face significant losses from the event.

Shares of Goldman Sachs and Morgan Stanley are little changed over that same period. With Reporting from CNBC's Dawn Giel and Ritika Shah.

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