Morgan Stanley and Goldman Sachs, two of the firms at the heart of Archegos Capital Management’s runoff, played a variety of roles before, during, and after the margin call.

This raises questions about whether companies should have had a compliance role to intervene in their potentially conflicting roles in the same stock.

One of the main triggers for Archegos’ breakup was the market’s lukewarm reaction to a multi-billion dollar ViacomCBS secondary offer last Wednesday.

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

After a 23% decline from ViacomCBS as part of the secondary offering, Goldman Sachs, Morgan Stanley and a number of other banks on Wall Street initiated a margin call on Archegos.

This prompted the two giant investment banks to seize Archegos’ assets, including billions of dollars worth of ViacomCBS shares, and sell them through heavily discounted block deals. The move put significant pressure on ViacomCBS B shares, which fell 27% on Friday and another 7% the following Monday.

However, the timing of events raises questions about who in the companies knew what and when, given Archegos’ demise and collateral damage in several stocks, including ViacomCBS.

Goldman Sachs spokeswoman Maeve Duvally said, “There are strong information barriers between the parts of the company that manage corporate fundraising and our relationships with institutional investors.” Morgan Stanley declined to comment.

“There is definitely a possibility of conflict,” said Harvey Pitt, former chairman of the Securities and Exchange Commission. “The fact that with sufficient leverage, selling and selling pressure could be encouraged and selling pressure actually enforced, makes it very real that the potential for conflict has always been there.”

By March 22, 2021 ViacomCBS shares were up more than 165% to close above $ 100 per share. That was an increase of nearly 800% from the 2020 low, almost exactly a year earlier.

The company tried to take advantage of its increased share price to bring $ 3 billion worth of shares to market. Underwriters who sold the stock included Morgan Stanley and JPMorgan as lead bookrunners, as well as Citigroup, Goldman Sachs, Mizuho, ​​and others who were more passive.

These banks faced a lukewarm market reaction and valued 20 million Class B shares at $ 85 each on March 24 and an additional 10 million convertible preferred shares at $ 100 each. The stock declined on news of the placement, and the move was one of the key catalysts that, according to relevant sources, led to increased demands for collateral from Archegos.

The family office was extremely focused on a long position in ViacomCBS and was therefore also exposed to pressure due to minor price declines.

Investors who bought ViacomCBS for $ 85 saw those stocks worth $ 48 just days later.

As the lead bookrunner of the deal, Morgan Stanley sold more shares than the other companies involved – approximately 4 million shares through the convertible preferred model and an additional 9 million through the Class B common stock offering. Goldman Sachs sold approximately 323,000 through the convertible preferred and another 646,000 through the common stock offering .

Archegos-related block sales began early on March 26, just two days after secondary school. The first batch was carried out by Goldman Sachs, who offered discounted shares in Baidu, Tencent Music and Vipshop.

Then the company dumped $ 1.7 billion worth of Viacom at lunchtime – 35 million shares priced at $ 48 each, said people who asked not to be named. This corresponded to a 44% discount on the second sale just two days earlier.

In the meantime, Morgan Stanley was busy offering their own blocks that day in names like Discovery, Shopify, and Farfetch. The company’s Viacom stock sale – similar in size to Goldman’s – was sold two days later, on Sunday evening.

The banks – particularly Morgan Stanley and Goldman Sachs – which were able to quickly exit the positions they had taken over from the liquidation of Archegos, came out of the event relatively unscathed.

Those reportedly slower to respond could suffer billions in losses. A JPMorgan release estimates that combined global losses to companies exposed to Archegos could total $ 10 billion, with Nomura and Credit Suisse having most of the impact.

Both Nomura and Credit Suisse shares fell around 19% as they each announced they would take significant losses from the event. Morgan Stanley and Goldman Sachs stocks barely changed over the same period.

– With reports from Dawn Giel and Ritika Shah of CNBC.