Nearly $5 Billion in Damages in Archegos
The Swiss company said it lost 252 million Swiss francs ($275 million) in Q1 after it took a 4.4 billion Swiss francs ($4.8 billion) charge in Archegos, a US-based hedge fund that collapsed last month after taking on too much risk.
The company has exited 97% of Archegos’s trading positions, it said in the statement. The losses will continue to occur in Q2, as the banking business projects to lose an additional 600 million Swiss francs ($655.8 million) for the quarter to end-June.
“Our results for the first quarter of 2021 have been significantly impacted by a CHF 4.4 bn charge related to a US-based hedge fund. The loss we report this quarter, because of this matter, is unacceptable. Together with the Board of Directors, we have taken significant steps to address this situation as well as the supply chain finance funds matter,” commented Thomas Gottstein, CEO of Credit Suisse Group AG.
Without an Archegos hit, Credit Suisse would have reported business revenues of 7.4 billion Swiss francs ($8.08 billion), which would represent a surge of 35% year-on-year (YOY) basis. Gottstein says that Q1 performance was strong, driven by solid performances of its local Swiss business, as well as strength in Asia and the investment banking business sector.
Describing the Q1 performance, aside from Archegos, the Chief Executive says it was “one of our best quarters in the history of Credit Suisse. Definitely the best quarter in the last 10 years.”
Following the Archegos scandal, the Swiss company announced that the investment bank’s chief Brian Chin, as well as chief risk and compliance officer, Lara Warner, both stepped down. The company will also restructure its risk and compliance business units to “ensure Credit Suisse emerges stronger” from the Archegos scandal.
“Among other decisive actions, we have made changes in our senior business and control functions; we have enhanced our risk review across the bank; we have launched independent investigations into these matters by external advisors, supervised by a special committee of the Board; and we have taken several capital-related actions,” Gottstein added.
The company is set to raise more than $2 billion in fresh funding to increase its balance sheet and improve liquidity. This will “enable us to support the momentum in our core franchises,” says Gottstein.
A few hours prior to the company’s Q1 results release, the Wall Street Journal reported that Credit Suisse amassed more than $20 billion of exposure to business investments related to Archegos hedge fund. Given the amount of risk associated, huge losses were inevitable as the Swiss business struggled to monitor all business investments made by Archegos.
Credit Suisse stock has lost about 30% amid the Archegos saga to completely erase gains it made in the past six months.
Swiss investment banking company Credit Suisse reported a Q1 loss after taking a $4.8 billion hit following a default of the US-based hedge fund Archegos. The company announced today it is set to raise over $2 billion to improve its balance sheet.
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."