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Credit Suisse Shareholder Says Archegos Is ‘Wake-Up Call’

This content was published on March 31, 2021 - 15:05

(Bloomberg) -- David Herro said Credit Suisse Group AG’s expected losses from the Archegos Capital crisis should lead to sweeping changes to its culture and oversight practices.

“Risk controls still are not where they should be,” Herro said in an interview with Bloomberg Television Wednesday. “Hopefully this is a wake-up call to expedite the cultural change that is needed in this company.”

The chief investment officer of Harris Associates -- one of Credit Suisse’s largest shareholders -- said that while the damage can be repaired, Harris would re-examine its investment if changes weren’t forthcoming.

“If we believe that the management team we are invested with are not capable of producing value in the future, then we will sell the stock,” Herro said. “At this stage, we are not there with Credit Suisse.”

Credit Suisse warned on Monday that it faces big losses tied to Archegos, a U.S. hedge fund that defaulted on margin calls. The figure may run into the billions, according to people with knowledge of the matter, while JPMorgan Chase & Co. analysts said media speculation of a $3 billion to $4 billion loss was “not an unlikely outcome.” The Archegos furore comes at the same time the bank is gauging the financial impact of Greensill Capital’s collapse.

Herro also said Chief Executive Officer Thomas Gottstein, who took the helm last year, is the right person for the job. Outgoing chairman Urs Rohner bore the brunt of his criticism as he called for a clearout of “the people who are responsible for accepting a culture that doesn’t balance risk and return.”

Rohner “has been on top of this organization for 10 years and presided over this,” Herro said. “I only wish the board would have acted sooner in removing him.”

Spying Scandal

Harris supported Tidjane Thiam, Gottstein’s predecessor, when he was caught up in a spying scandal in 2019. Despite Herro’s backing, the scandal led to the ouster of Thiam after a power struggle with Rohner, and rattled the usually quiet world of Swiss banking.

Credit Suisse may still be suffering from that decision, Herro said.

“One of the things that didn’t help was when we had the spygate scandal over a year ago and we lost some good people-- the CEO, the chief operating officer,” Herro said. “That left a bit of a void.”

Herro, who welcomed the imminent arrival of new chairman Antonio Horta-Osorio as an opportunity to reset the organization, also said it would be “prudent” of the Swiss lender to pause its share buyback program. In a subsequent Bloomberg Radio interview, he even ruminated on the unlikely possibility of the investment banks of Credit Suisse and cross-town rival UBS Group AG joining forces.

“Especially in light of what has happened in the last few weeks, one has to ask oneself whether there is something that can be done to add critical mass to these investment banks by putting them together,” he said.

(Updates with details throughout.)

©2021 Bloomberg L.P.

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