Credit Suisse appeals to investors for liquidity after increase in Archegos loss
The Swiss banking giant has been rocked by the double crisis of the loss of Archegos and the collapse of another client, Greensill Capital. He said on Thursday that it would take another charge of $ 655 million related to Archegos, in addition to a charge of $ 4.7 billion in the first quarter. He said he had a small remaining exposure to Archegos on Wednesday after selling 97% of his related positions.
To counter the damage caused to its capital position by the loss and the new charges imposed by the Swiss financial regulator, Credit Suisse has sold securities which will be converted into shares in six months. The final amount raised from investors will be discounted from the bank’s share price on Thursday and Friday.
Archegos and Greensill’s double hit represents the bank’s biggest test in years and comes at a time of leadership transition. Thomas Gottstein took over as chief executive a year ago after his predecessor, Tidjane Thiam, was kicked out after the bank was caught spying on a recently resigned executive.
Long-time bank chairman Urs Rohner will retire after an annual shareholders meeting next week. He will be replaced by an outsider, Lloyds Banking Group PLC CEO António Horta-Osório, a seasoned banker who oversaw the rebuilding of Lloyds after the financial crisis. He began to lead the crisis response, according to people familiar with the matter.
Credit Suisse shares fell as much as 6% on Thursday on news of the fundraiser. Its stock has fallen by about a third since the end of February, even as bank stocks in general have performed well thanks to the rebound in economies after the Covid-19 lockdowns.
Credit Suisse has been hit hardest by lenders from Archegos, an American family-owned investment firm that took huge bets on a few stocks with borrowed money. The Wall Street Journal reported on Wednesday that the bank had racked up $ 20 billion in exposure to Archegos-related investments, but struggled to monitor it.
On Thursday, Mr Gottstein said the loss of Archegos and Greensill’s situation were both unacceptable, but tried to draw a line, highlighting the actions the bank has taken – reducing its dividend and eliminating some executives who oversaw business with Greensill and Archegos. Credit Suisse’s board is investigating what went wrong and examining how to reshape the bank to avoid future explosions.
“I have no doubts that Credit Suisse’s overall strategy is sound,” said Gottstein, highlighting the outperformance of most of its businesses in the first quarter. “Now is the time to look to the future.”
But analysts and investors see a tough road for the bank. The bank faces widespread regulatory control over mishaps.
Swiss financial regulator Finma said on Thursday it had opened enforcement proceedings against the bank for the way it had managed risks around Archegos.
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Finma also said it has opened enforcement proceedings in the Greensill Funds. Credit Suisse said it had reduced a loan owed by Greensill, but reported that it did not plan to compensate investors who put their money into the funds.
“We have not compensated the investors of these funds. They are third party investors, ”said David Mathers, CFO of Credit Suisse on Thursday.
Swiss regulators have already demanded higher levels of capital and may insist on other remedies, including fines, further management changes and limits on the level of risk its companies can take.
Even before Archegos and Greensill, Credit Suisse had suffered a long series of one-off losses and embarrassing scandals.
Last year, Luckin Coffee Inc.,
a prominent Chinese client, exposed an accounting fraud that caused losses to Credit Suisse on a loan made to the founder of Luckin. A former client is suing the bank for around $ 800 million for ignoring alerts a Credit Suisse banker stole from him for years. The bank also faces lawsuits and regulatory fines of more than $ 2 billion in fraudulent loans in Mozambique.
In February, she suffered a billion dollar financial blow when she settled a ten-year-old U.S. court case over toxic mortgage securities. The bank said Thursday it would need to set aside additional capital due to the deal. He also recently made a note of $ 450 million on a stake he held in a large US hedge fund.
Credit Suisse is likely to face pressure in the United States, where the Archegos business has been managed. The Federal Reserve is reviewing Archegos’ situation and working with foreign regulators. The Senate Banking Committee wrote this month to Credit Suisse and other banks seeking information about their dealings with Archegos.
Mr Gottstein said the Swiss parliament would look into the matter and that regulators in the UK, where some of Archegos’ business is managed, are coordinating with their US and Swiss counterparts.
The CEO of Credit Suisse said the bank is still analyzing the explosion. He said it was an idiosyncratic situation in which the underlying exposure to equities grew explosively over a few months, but “it is clearly unacceptable that we have even entered this position,” he said. declared.
Mr Gottstein said the bank’s exposures to Archegos reported in the media included both long and short positions, without giving further details.
A bright spot for Credit Suisse was an otherwise strong quarter that cushioned the losses from Archegos. His loss for the quarter was ultimately only 252 million Swiss francs, or about 275 million dollars.
Credit Suisse investment banking revenue grew 80%, supported by a sharp increase in activity on Wall Street in closing corporate deals and selling stocks and obligations. The bank is a major sponsor of Special Purpose Acquisition Companies, or SPACs, a growing corner of the fundraising world.
But the bank’s ability to generate outsized profits in its investment bank in the future is overshadowed by the massive loss of Archegos. To avoid future explosions, the bank announced that it would scale back its prime brokerage operations that serve hedge funds and family offices by reducing clients and assets.
However, he did not report a full retreat, noting that he will focus on key clients. As a sign that it is unwilling to cut investment banking significantly, it will target a measure of its assets in that division to end-2020 levels.
Write to Margot Patrick at [email protected]
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