Archegos is the New York family office of former hedge fund manager Bill Hwang. Its collapse in March triggered one of the biggest sudden business losses in Wall Street history. Archegos took huge bets on a few stocks using a mix of cash and swaps with money borrowed from banks. It has not been able to respond to margin calls as some of its most important positions have started to reverse and the fallout from its collapse continues.

“You see a lot of maneuvering from banks to adjust how they determine a portfolio’s margin,” said Michael Katz of Quadrangle Consulting, who advises clients, including hedge funds, on financing deals. with brokers ..,

Wall Street losses – $ 5.5 billion for Credit Suisse alone, but also for Nomura Holdings Inc.,

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Morgan Stanley and UBS — are particularly surprising because brokerage and swap firms require collateral in exchange for their loans.

In recent earnings calls, banks have spoken about what they are doing in the wake of Archegos. Credit Suisse has said it will cut its blue chip brokerage operations. Morgan Stanley has said it is revising its stress testing methodology, even though it has no plans to reduce its relationship with hedge funds or family offices. UBS said it was reviewing its prime brokerage relationships and the activity remained strategically important to the bank.

Nomura conducted a review of its prime broker, the bank said in April. It froze customer balances but did not reduce its leverage, said a person familiar with the matter.

Banks including Goldman Sachs Group Inc.,

Morgan Stanley and UBS are focusing on hedge funds with highly concentrated positions, including those that attempt to increase their returns by borrowing a large amount of money, the fund managers said. Some people perform stress tests to see where they might run into deficits if some of a fund’s positions drop precipitously. Newly empowered credit risk departments review clients with much more diverse portfolios than Archegos.

Several banks are starting to rework deals with a number of clients to change the terms of equity total return swaps, top brokerage executives and fund advisers have said. Total return swaps are derivative contracts that have helped Archegos anonymously accumulate huge positions with multiple lenders, unbeknownst to those lenders and with little money to start with. The collapse of Archegos prompted calls for stricter regulation of such exchanges.

Swaps give their holders exposure to the profits and losses of the securities underlying the agreements, but not to the ownership. In the case of Archegos, for example, the family office had swap agreements with several banks giving it exposure to ViacomCBS Inc.

But the banks actually held the shares.

As it stands, certain margin requirements are set. In the future, certain clients will be regularly required to provide additional collateral depending on the evolution of the market value of their portfolios or factors such as increased volatility or concentration. Many swap deals already have such a margin requirement, although some larger clients with more negotiating power do not.

Elizabeth Schubert, a partner at Sidley Austin LLP who advises hedge fund clients on negotiating their business relationships with brokers, said she recently saw several banks look into a client’s cash positions and swaps when determining the required collateral.

With change comes compromise, she said.

For brokers, “It gives them more control from a risk management perspective, but clients lose a lot of control and transparency over the margin they need to show,” said Ms. Schubert. . . She added that fund managers who have lived through the failure of Lehman Brothers, which has tied up the assets of some funds for years, remain reluctant to post more than a minimal amount of margin.

Several banks, including Morgan Stanley, have spoken to clients about fully or partially terminating swaps, people familiar with the conversations said. Such measures could help reduce lenders’ exposure to swaps and, in some cases, reduce the leverage used by a fund.

As Archegos pushed Credit Suisse out of blue chip brokerage, it sparked a move for clients by others.

A fund manager said Credit Suisse’s tighter leverage gave it a reason to move balances elsewhere. Other managers have reduced or moved their balances to other counterparties.

London-based Pelham Capital has spoken of withdrawing its business from Credit Suisse, people briefed on the matter said. Pelham executives expressed concern about the bank’s involvement in Archegos and Greensill Capital, which collapsed into insolvency in March, the people said. Pelham did not respond to requests for comment.

Other prime brokers, including Goldman, have attempted to withdraw business from Credit Suisse. Goldman said he was able to avoid losses from the Archegos collapse in part because he was among the first to offload Archegos’ assets.

Goldman brokers have called Credit Suisse clients in recent weeks to highlight its risk management practices, fund managers said. Goldman CFO Stephen Scherr on a recent earnings conference call described the growth of his blue chip brokerage business as “a strategic imperative” for the company and not tied to Archegos.

JPMorgan Chase & Co. and Barclays PLC, whose main brokers were not exposed to Archegos, are among those who have attracted new clients or more business from existing clients, people familiar with the banks said.

Write to Juliet Chung at [email protected], Gregory Zuckerman at [email protected] and Julie Steinberg at [email protected]