Credit Suisse to write down $4.7bn after Archegos implosion

The Swiss lender is replacing investment banking head Brian Chin and chief risk officer Lara Warner after its worst trading debacle in more than a decade

FILE PHOTO: The logo of Swiss bank Credit Suisse is seen at its headquarters in Zurich, Switzerland March 24, 2021.   REUTERS/Arnd Wiegmann//File Photo

Credit Suisse Group will take a 4.4 billion Swiss franc ($4.7bn) write down tied to the implosion of Archegos Capital Management and replace more than half a dozen executives in response to the firm’s worst trading debacle in more than a decade.

The charge will result in a pre-tax loss of about 900 million francs for the first quarter, the bank said in a statement on Tuesday, putting it on track for its second straight net loss. Credit Suisse scrapped bonuses for top executives, cut its dividend and suspended share buybacks to protect its capital. Investment bank head Brian Chin and chief risk officer Lara Warner are leaving the firm.

Chief executive Thomas Gottstein vowed he will draw “serious lessons” as the Archegos loss and the collapse of Greensill Capital last month leave him with little room for further missteps. The firm is the worst-performing major banking stock in the world this year as a strong first two months for its investment bank business are being overshadowed by its exposure to the failed firms.

“I recognise that these cases have caused significant concern amongst all our stakeholders,” Mr Gottstein said on Tuesday. “Together with the board of directors, we are fully committed to addressing these situations. Serious lessons will be learned.”

Credit Suisse shares fell 0.5 per cent at 9:12am (11:12am UAE time) in Zurich trading. The stock is down more than 11 per cent this year, compared with an 18 per cent gain at local rival UBS Group.

In addition to the Archegos write down, the bank may need to set aside 2bn francs over the coming years for litigation tied to Greensill, analysts Kian Abouhossein and Amit Ranjan at JPMorgan Chase wrote in a note.

“The long-term consequences will be felt in the bank over time” as Credit Suisse needs to prioritise capital preservation over growth, the analysts wrote.

Mr Chin and Ms Warner are the highest-ranking executives to leave over the twin hits. Mr Gottstein previously removed Eric Varvel from his role running asset management after Greensill’s downfall. In a memo to staff on Monday, Credit Suisse also announced at least five other departures, including equities trading chief Paul Galietto.

Christian Meissner, the former Bank of America executive who joined Credit Suisse in October, will take over from Mr Chin next month. Joachim Oechslin will become risk chief in the interim, a role he held until 2019 when Ms 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 per cent in the first quarter. It had aimed for at least 12.5 per cent in the first half of this year.

Chairman Urs Rohner offered to forgo his compensation for 2020 of 1.5m francs and bonuses for the executive board have been scrapped for that year.

"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,"  Alison Williams, Bloomberg Intelligence banking analyst, said.

"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."

The Zurich-based lender was one of several global investment banks to facilitate the leveraged bets of Archegos, the family office of former hedge fund manager Bill Hwang. But while many other firms that had prime brokerage relationships with Archegos unloaded their positions with minimal damage, Credit Suisse was caught with major losses. The Swiss bank sold $2.3bn worth of stocks tied to Archegos earlier this week, a person familiar with the matter said.

Start-up lender Greensill Capital had borrowed from the bank and helped manage about $10bn of debt funds for Credit Suisse asset management clients that the Swiss firm had 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”.

Mr 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 has been overwhelmed by repeated lapses in oversight.

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