The Big Streaming Bet That Bounced

What’s the most you’ve lost in a 48 hour span? $50? $100? Maybe $500 if you’re a bit of a Saturday night high-roller at the SkyCity Casino? Whatever the number, what you’re about to read will probably make you feel a lot better about your setback, because I’m pretty sure it isn’t as high as $20 billion. That’s right, not million. $20 billion. Yes, as bad as you’re 48 hours was, it wasn’t anywhere near as bad as the 48 hours New York investor Bill Hwang had last week. 

Hwang, the head of investment firm Archegos Capital Management, had become somewhat of a mythical figure in the investment world, after turning what was $200 million in 2013 to $20 billion as recent as earlier this year through stock trading while maintaining a comparatively very low profile. But a misplaced bet in media conglomerate ViacomCBS might have proven to be his undoing. ViacomCBS is the parent company of Paramount Pictures and numerous television channel such as Nickelodeon and Comedy Central and has seen some dramatic shifts in its stock price since it’s high-profile merger in 2019. The companies had been struggling with financial losses due to heavily declining cable television ratings and decided that it was about time they dived head first into the streaming game. In late 2020, the company announced a significant revamping of its existing streaming platform CBS All Access, a new service named Paramount Plus. ViacomCBS’s improved streaming service would combine the vast libray of iconic Paramount Pictures films with the impressive catalog of CBS’s television channels, and is designed to seriously compete major rivals Netflix, Amazon and Disney. The announced was a significant contributor to ViacomCBS’s soaring share price which rose as high as $100 per share from just $13 immediately following the merger. 

Hwang evidently was a believer and had massive amounts of money invested in ViacomCBS stock through leveraging with a number of banks on Wall Street. For those who aren’t familiar with the terminology, Hwang essentially had several Wall Street banks, including Goldman Sachs and Morgan Stanley, act as brokers, buying shares in ViacomCBS and other offerings on behalf of himself and Archegos Capital. This allowed him to buy more significantly more shares than he could afford if doing so independently. It’s a classic high-risk, high-reward strategy, which for the past 8 years, Hwang seemed to have perfected.

 However, last month Hwang’s bold strategy blew up squarely in his face. On March 23nd ViacomCBS stock price suddenly plummeted after it overestimating the value of its own stock in a new offering, prompting the banks to cover their own backs by issuing ‘margin calls’, demanding Hwang front up with the money to cover his bets. Problem being, of course, Hwang didn’t have the money; he was betting with money he didn’t have. Hwang and Archegos Capital were forced to default, causing a chain reaction where the banks quickly sold their ViacomCBS stock, resulting in a massive drop in ViacomCBS’s market value. After sitting at a market value of $60 billion on March 23rd, the Archegos incident had seen ViacomCBS’s value sink to $28 billion just one week later. But while ViacomCBS’s dramatic market swings are certainly notable, the major story here is the downfall of Hwang, who’s disastrous 48 hour stretch was described by a fellow investor as “one of the single greatest losses of personal wealth in history.” I, personally, once left a casino down $80 and it kept me up at night for a whole week. Losing $20 billion, well, that might take a bit longer than a week to get over.