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Sunday, August 14, 2022

Credit Suisse Takes $4.7 Billion Archegos Hit

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Credit Suisse Group AG will take a 4.4 billion francs ($4.7 billion) 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 over a decade.

The charge will result in a pretax loss of about 900 million francs for the first quarter, the bank said in a statement 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.

Chief Executive Officer Thomas Gottstein vowed he will draw “serious lessons” from the Archegos loss and the collapse of Greensill Capital last month as they leave him with little room for further missteps.

The firm is the worst-performing major bank 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 recognize that these cases have caused significant concern amongst all our stakeholders,” Gottstein said Tuesday. “Together with the board of directors, we are fully committed to addressing these situations. Serious lessons will be learned.”

Credit Suisse rose 1.8 percent at 12:18 p.m. in Zurich trading, paring losses this year to 9.3 percent. The bank’s $2.25 billion perpetual bonds rose about 2 cents on the dollar to 110 cents, although the notes are still trading below levels seen before the Archegos blow-up.

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

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

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

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

Chairman Urs Rohner offered to forgo his compensation for 2020 of 1.5 million francs and bonuses for the executive board have been scrapped for that year. Rohner is set to step down later this month when Lloyds Banking Group Plc CEO Antonio Horta-Osorio takes over.

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