Credit Suisse Group AG emerged as the big loser in global investment banks’ race to the exits following the implosion of Archegos Capital Management, with the fiasco leading to a quarterly loss and a major shakeup at the top of the Swiss bank.
The firm will take a 4.4 billion franc ($4.7 billion) writedown tied to its Archegos exposure, forcing it to cut its dividend and suspend share buybacks. The company’s investment bank head and chief risk officer were among more than half a dozen executives replaced over the worst trading debacle in over a decade.
While Credit Suisse was far from the only bank that allowed Bill Hwang’s family office to lever up large positions in a few stocks, others managed to unwind their exposure quickly with minimal damage. That raised questions over Chief Executive Officer Thomas Gottstein’s handle on the firm’s risk just weeks after the lender was caught up in another implosion of a little-known financial player.
“Serious lessons will be learned,” Gottstein said Tuesday in a statement. The Archegos loss “is unacceptable.”
Credit Suisse has now offloaded the bulk of its Archegos exposure, helped by a $2.3 billion sale this week. But the impact of that latest sale and any remaining positions could affect second-quarter results, according to a person with knowledge of the matter, after the Archegos hit caused a 900 million-franc pretax loss in the first quarter.
The firm is still set to give an update on the effect of last month’s collapse of Greensill Capital, which helped manage $10 billion of investment funds the Swiss bank offered to asset management clients. Credit Suisse is leaning toward letting clients take the hit of expected losses in those funds, a person familiar with the discussions said. Analysts expect years of legal costs tied to the matter.
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“The long-term consequences will be felt in the bank over time” as Credit Suisse needs to prioritize capital preservation over growth, analysts Kian Abouhossein and Amit Ranjan at JPMorgan Chase & Co. wrote in a note.
Credit Suisse rose 0.7% at 2:34 p.m. in Zurich trading, paring losses this year to 10%. The bank’s bonds gained in early trading as the dividend cut and suspension of buybacks prevented a bigger hit to its capital strength.
Among the executives to leave are investment bank head Brian Chin and risk chief Lara Warner. Gottstein previously removed Eric Varvel from his role running asset management after Greensill’s downfall. In a memo to staff Monday, Credit Suisse also announced at least five other departures, including equities trading chief Paul Galietto.
Christian Meissner, the former Bank of America Corp. executive who joined Credit Suisse in October, will take over from Chin next month. Joachim Oechslin will become risk chief in the interim, a role he held until 2019 when Warner took over. Thomas Grotzer was named interim head of compliance.
The bank cut its dividend proposal for 2020 to 10 centimes a share, from about 29 centimes, and suspended its share buyback until its common equity Tier 1 ratio, a key measure of capital strength, returns to the targeted level. Credit Suisse said it expects a CET1 ratio of at least 12% in the first quarter. It had aimed for at least 12.5% in the first half of this year.
Chairman Urs Rohner offered to forgo his compensation for 2020 of 1.5 million francs and bonuses for the executive board have been scrapped for that year. Rohner is set to step down later this month when Lloyds Banking Group Plc CEO Antonio Horta-Osorio takes over.
What Bloomberg Intelligence Says:
Credit Suisse’s buyback pause and reduced dividend to get its capital position back on track isn’t the cure-all for its financial woes, though may fall short of more bearish fears. Our near-term concerns remain the fallout from Greensill costs, knock-on revenue dents to its prime and asset-management units and elevated control costs, along with lingering regulatory and legal challenges.
-- Alison Williams, BI banking analyst
Credit Suisse Payout Pause Won’t Halt Archegos Fallout: React
The Zurich-based bank was one of several global investment banks to facilitate the leveraged bets of Archegos, and had tried to reach some sort of standstill to figure out how to unwind positions without sparking panic, people familiar with the matter have said. The strategy failed as rivals rushed to cut their losses.
Global banks including Goldman Sachs Group Inc., Deutsche Bank AG and Wells Fargo & Co. have told investors that they shed their Archegos-linked positions with little financial impact. Nomura Holdings Inc. has signaled it could lose as much as $2 billion.
Credit Suisse’s latest trades came more than a week after several rivals dumped their shares. The bank hit the market with block trades tied to ViacomCBS Inc., Vipshop Holdings Ltd. and Farfetch Ltd., a person with knowledge of the matter said. The stocks traded substantially below where they were last month before Bill Hwang’s family office imploded.
In addition to the Archegos writedown, Credit Suisse may need to set aside 2 billion francs over the coming years for litigation tied to Greensill, according to the JPMorgan analysts.
Startup lender Greensill Capital had borrowed from the bank and helped manage a group of debt funds that were marketed as among its safest products. Now the funds are frozen and being wound down after Lex Greensill’s firm collapsed amid doubts about its lending practices.
Credit Suisse said it will provide an update on the funds in the “next few days.”
Gottstein took over in February 2020 in the wake of a spying scandal that took down his predecessor and pledged a clean slate for 2021 after legacy issues marred his first year. Instead, he’s been overwhelmed by repeated lapses in oversight.
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