Sources familiar with trades involving Archegos Capital said on Monday that global banks could lose more than $6 billion as a result of the collapse of the US investment company, and regulators and investors are concerned that the episode could spread further.

Nomura in Japan and Credit Suisse in Switzerland warned of substantial losses from lending to Archegos for equity derivatives transactions.

Morgan Stanley's stock dropped 2.6 percent, while Goldman Sachs Group's stock dropped 1.7 percent. Nomura's stock dropped 16.3% on the day, setting a new low, while Credit Suisse's stock dropped 14%, the most in a year. UBS was down 3.8 percent and Deutsche Bank was down 5%.

According to the situation, losses at Archegos Capital Management, a family office operated by former Tiger Asia boss Bill Hwang, sparked a fire sale of stocks like ViacomCBS and Discovery on Friday.

Archegos was unable to satisfy banks' demands for additional collateral to protect equity swap trades. According to the sources, lenders sold vast blocks of shares to recoup what they were owed after the value of those positions collapsed.

Three sources revealed on Monday that the problems began last week when a disappointing stock sale by media conglomerate ViacomCBS caused disastrous bank margin calls for Archegos.

Last Wednesday, ViacomCBS stock dropped by 23% after the media company sold shares at a price that diluted its worth. Analyst downgrades worried that ViacomCBS' stock has become over-valued also affected ViacomCBS' stock, which usually declines after share sales.

The stock of ViacomCBS continued to fall on Thursday, dropping 30%, making Archegos' prime brokers worry and causing them to unload stock in all of Archegos' investments.

Goldman and Morgan Stanley were swift to offload shares on Friday, averting a major financial impact. Deutsche Bank had substantially reduced its Archegos exposure without incurring any losses and was working to reduce its "immaterial client roles," on which it did not plan to lose money. Many banks suffered more drastic consequences.

Credit Suisse said a margin call default by a US-based fund. It could be extremely important and material to its first-quarter earnings. While Nomura, Japan's largest investment bank, warned of a $2 billion loss.

Credit Suisse's losses are expected to be at least $1 billion. The losses could total $4 billion.

Hedge funds suffered substantial losses on short positions during the run-up in GameStop Corp stock in February. Its de-leveraging played an important factor in the March 2020 turbulence in the US Treasury sector.

The opaque and dynamic nature of Archegos' derivative trades, and its lightly controlled structure and high leverage, got fueled by record-low interest rates, raised concerns about credit risk.

Regulators in the US, the UK, Switzerland, and Japan were keeping a close eye on the situation. According to one source familiar with the trades, Archegos purchased total return swaps, which allow investors to bet on stock price fluctuations without buying the underlying securities. Rather than purchasing the securities with cash, the fund posts collateral against them. The roles of Archegos were highly leveraged. The company had $10 billion in assets but kept positions worth more than $50 billion.

Archegos' prime traders, who lent it money, arranged and processed its transactions, owned the underlying shares. Goldman Sachs, Morgan Stanley, Deutsche Bank, Credit Suisse, and Nomura were among them.

Banks had to sell huge blocks of stock to untangle their positions. ViacomCBS and Discovery both lost 27% on Friday, while China-based Baidu and Tencent Music's U.S.-listed shares dropped as much as 33.5 % and 48.5 % last week.

Baidu Inc, Tencent Music Entertainment Group, Vipshop Holdings Ltd, Farfetch Ltd, iQIYI Inc, and GSX Techedu Inc were among the other stocks involved in Archegos-related liquidations.