Major Changes Announced
Credit Suisse, the second-biggest bank in Switzerland, suffered “significant losses” in recent weeks following a saga involving Archegos hedge fund, which defaulted on margin calls in late March.
The Swiss company now expects to report a pre-tax loss for Q1 2021 of about CHF 900 million ($958.3 million) after the banking business took a charge of CHF 4.4 billion ($4.69 billion). Before the hit, the company experienced a “very strong performance” achieved across all three wealth management business divisions.
"The significant loss in our Prime Services business relating to the failure of a US-based hedge fund is unacceptable. In combination with the recent issues around the supply chain finance funds, I recognize that these cases have caused significant concern amongst all our stakeholders,” said Thomas Gottstein, CEO of the company.
The company has already taken steps to address the Archegos implosion. Credit Suisse said it will suspend its share buyback program and slash its dividend by two-thirds. The Swiss business said that it doesn’t intend to resume the buyback plan before regaining target capital ratios and restoring its dividend.
Moreover, the executive board members will lose their bonuses, while Chairman Urs Rohner will write off his CHF 1.5 million ($1.6 million) fee. Addressing investors’ concerns related to the company’s risk management practices, Credit Suisse said that Chief Risk Officer Lara Warner and Brian Chin, head of the investment banking business, will step down with immediate effect.
“Together with the Board of Directors, we are fully committed to addressing these situations. Serious lessons will be learned. Credit Suisse remains a formidable institution with a rich history,” Gottstein added.
The Swiss company has appointed Christian Meissner as chief of the investment bank business unit as of May 1, while Joachim Oechslin will take the risk chief role on an interim basis. Thomas Grotzer, who previously served as General Counsel and Member of the Executive Board of Credit Suisse, has been appointed interim Global Head of Compliance for the Group.
“Personnel consequences have now been taken. The main damage, however, has been inflicted on shareholders, who have to make do with a lower dividend and a suspended share buyback,” said Michael Kunz, an analyst at Zuercher Kantonalbank.
Credit Suisse and some other major banks, including Japan’s Nomura, took substantial losses after a US hedge fund Archegos was liquidated last month. The private fund, led by hedge fund manager Sung Kook “Bill” Hwan, defaulted after making aggressive and highly leveraged bets on certain stocks.
Brokers that facilitated trades of Archegos — Credit Suisse, Nomura, JP Morgan, Goldman Sachs, and others — rushed to sell huge blocks of shares to limit losses. Nomura projects it will take a hit of roughly $2 billion.
The Swiss banking company took a $4.7 billion hit following the liquidation of the US hedge fund Archegos in March. Moreover, the company moved to sack two senior executives, as well as suspend the buyback plan and cut the dividend by two-thirds.
About the Author
Luigi Wewege is the Senior Vice President and Head of Private Banking at Caye International Bank. Outside of the bank, he serves as an instructor at the FinTech School which provides online training courses on the latest technology and innovation developments within the financial services industry. Luigi is also the published author of "The Digital Banking Revolution."