Breaking News
Ad-Free Version. Upgrade your experience. Save up to 40% More details

Credit Suisse to boost capital ahead of further Archegos hit

Stock MarketsApr 22, 2021 07:15AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
2/2 © Reuters. FILE PHOTO: The logo of Swiss bank Credit Suisse is seen at a branch office in Zurich 2/2

By Brenna Hughes Neghaiwi

ZURICH (Reuters) - Credit Suisse (SIX:CSGN) will raise over $2 billion to strengthen its capital base after flagging a further hit from the collapse of U.S. investment fund Archegos and a shrinking of the prime brokerage unit responsible for the multi-billion dollar debacle.

The demise of Archegos and another major client, British finance firm Greensill, have plunged Credit Suisse into crisis, triggering losses, sackings and bonus cuts at a time when rivals are revelling in bumper profit from trading and dealmaking.

In a further blow for Chief Executive Thomas Gottstein, Switzerland's financial regulator has opened enforcement proceedings against the bank over how it handled the risks around Archegos and Greensill.

Credit Suisse said it expects a hit of about 600 million Swiss francs ($655.81 million) for the April-June quarter after exiting most of its Archegos-related positions. A 4.4 billion hit in January-March wiped out what would have been a stellar trading period, leaving it with a slightly smaller-than-flagged pre-tax loss of 757 million francs.

Its shares fell 5.7%, with analysts pointing to the further Archegos hit and dilution caused by the issuance announced on Thursday of bonds convertible into 203 million shares.

Credit Suisse was the bank hardest-hit from exposure to Archegos, a U.S. based family office which collapsed when it could not meet margin calls on its heavily leveraged stock bets.

In response, the bank is cutting its prime brokerage business, which caters to hedge fund clients, by about a third.

Credit Suisse's shares are down over 20% so far this year and the scandals have wiped out the 50% gain its stock had clocked up since November 2020, when optimism around vaccines and a new U.S. administration buoyed European financials.

For a graphic on Credit Suisse:

"The loss we report this quarter, because of (the Archegos) matter, is unacceptable," Gottstein said.

The Archegos blowup came weeks after Credit Suisse had to suspend investment funds linked to Greensill, creating a double whammy for Gottstein whose appointment at the end of 2019 was meant to signal a new era of calm after a spying scandal felled his predecessor Tidjane Thiam.

Switzeland's financial regulator, which is still investigating the spying controversy, said it had ordered several short-term measures to reduce the bank's risk exposure and had requested a suspension of some bonus payments.

Credit Suisse's new bond issuance will boost the bank's core capital level to around 13% from 12.2%, a level its chief financial officer said he had recommended the bank operate at "for the foreseeable future" and higher than its previous guidance.


U.S. rivals, which were quicker to exit trading positions as Archegos collapsed, produced forecast-beating profit for the first quarter. Net income at Goldman Sachs Group Inc (NYSE:GS) rose nearly six-fold. Morgan Stanley (NYSE:MS) disclosed an almost $1 billion loss from Archegos yet reported a 150% profit jump.

Stripping out the 4.4 billion franc first-quarter hit from Archegos and other significant items, Credit Suisse said pre-tax profit would have been 3.6 billion francs, which would have represented its best quarter operationally in at least a decade.

Highlighting the strong environment, Credit Suisse posted bumper earnings in its Asia-Pacific unit, up 154% year-on-year, and a 25% pre-tax profit rise in its Swiss business - the only two divisions unscathed by the recent Archegos and Greensill episodes.

While Gottstein has been grappling with limiting the damage to the bank's reputation and retaining both clients and staff, broader strategic initiatives have remained pending until incoming Chairman Antonio Horta-Osorio takes over on April 30.

Analysts expect the troubles - which have hit the bank's capital reserves - to impact earnings in future quarters, as lower capital reserves may limit risk appetite and impact staff and client relationships.

The bank on Thursday said it had cut compensation and benefit costs by 5% year-on-year, or 109 million francs on an adjusted basis. That represented a fraction of a massive drop in bonus accruals media had previously reported.

"In terms of employee retention (and compensation), we need to walk a balance. If we'd chose to increase compensation accruals this quarter after the bank has made a loss, I don't think that would be really acceptable to shareholders, frankly," CFO David Mathers told Reuters.

"That's understood by everybody at the bank. But clearly, there's the rest of the year to play for, and we'll see how performance goes and accrue accordingly," he said.

Investment banking posted a $2.6 billion pre-tax loss, as a 29% leap in fixed income sales and trading, 23% leap in equity sales and trading revenue, and much larger gains in capital markets and advisory failed to offset the huge hit from Archegos that the unit recorded.

Its asset management unit, which ran the $10 billion in funds linked to Greensill, saw profit dip 30% as a rise in managed assets failed to stop "significant items" pulling down revenue.

The unit, which is undergoing an overhaul, was already a source of trouble in the fourth quarter, when it was hit with a half-billion dollar impairment on a stake in another U.S. investment fund.

In April, it said it had identified $2.3 billion worth of loans exposed to financial and litigation uncertainties in its Greensill-linked supply chain finance funds.

Data from researcher Morningstar estimated asset flows into Credit Suisse's Europe-domiciled fund range dropped in March, the month it announced the suspension of Greensill-linked funds.

Total net assets and the market share of actively managed funds also fell, Morningstar estimates showed. That compared with an increase across the broader European market.

($1 = 0.9149 Swiss francs)

Credit Suisse to boost capital ahead of further Archegos hit

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (2)
Zach Lohman
Zach Lohman Apr 22, 2021 7:32AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
How do you let your exposure get that big without red flags going up everywhere? It sounds like the chief risk officer hadn’t even heard of the fund till weeks before collapse at most.
Wlodek Minta
Wlodek Minta Apr 22, 2021 3:31AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
"The loss we report this quarter, because of (the U.S.-based investment fund) matter, is unacceptable," Chief Executive Thomas Gottstein said in a statement. Fully agree and Gottstein not acceptable as well
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email