Credit Suisse warns Archegos Capital blowup will cost it £3.4bn

Oscar Williams-Grut
·Senior City Correspondent, Yahoo Finance UK
·3-min read

WATCH: Credit Suisse takes $4.7bn hit from Archegos meltdown

Credit Suisse (CSGN.SW) has announced a shake-up of its leadership and scrapped executive bonuses after admitting that the recent blow-up of a major client will cost it an estimated $4.7bn (£3.4bn, $4.7bn).

Credit Suisse on Tuesday unveiled the true extent of the damage from Archegos Capital, the family office that sent shockwaves through Wall Street after a series of huge leveraged bets it made blew up and sunk the fund.

The Swiss bank said in an update that it was set to take a CHF 4.4bn hit from "the failure by a US-based hedge fund to meet its margin commitments". Last month Credit Suisse had warned it was facing "highly significant" losses from the collapse of Archegos but did not put a figure on the damage. 

READ MORE: Hedge fund blowup sends shockwaves through Wall Street and the City

Credit Suisse said the huge hit would "negate the very strong performance that had otherwise been achieved" and meant the bank was now likely to make a CHF 900m loss in the first half of 2021. 

The Swiss lender has also been caught up in the collapse of Greensill Capital, a major supply chain finance company that collapsed last month. Credit Suisse ran funds totalling $10bn that invested in debt instruments generated by Greensill Capital. Those funds were suspended after the company's collapse.

This photograph taken on November 4, 2020 shows a sign of Switzerland's second largest bank Credit Suisse on a branch's building in downtown Geneva. (Photo by Fabrice COFFRINI / AFP) (Photo by FABRICE COFFRINI/AFP via Getty Images)
A sign of Switzerland's second largest bank Credit Suisse on a branch's building in downtown Geneva. Photo: FABRICE COFFRINI/AFP via Getty Images

"The significant loss in our Prime Services business relating to the failure of a US-based hedge fund is unacceptable," chief executive Thomas Gottstein said in a statement. "In combination with the recent issues around the supply chain finance funds, I recognize that these cases have caused significant concern amongst all our stakeholders."

READ MORE: Banks stabilise as Archegos Capital impact becomes clearer

Credit Suisse announced it was launching investigations into both the bank's handling of Archegos Capital and Greensill Capital.

WATCH: Credit Suisse executives depart on $4.7bn Archegos hit

The bank announced Brian Chin, chief executive of the investment bank, and Lara Warner, chief risk and compliance officer, would both also be leaving in the wake of the scandals. Christian Meissner, who runs wealth management within the investment bank, will replace Chin. Credit Suisse's former chief risk officer Joachim Oechslin will return to the role he left in 2019. Oechslin had been working as a senior advisor to the bank. Credit Suisse's general council Thomas Grotzer will take on the role of chief compliance officer.

"Together with the Board of Directors, we are fully committed to addressing these situations," Gottstein said. "Serious lessons will be learned. Credit Suisse remains a formidable institution with a rich history."

Executive bonuses for the year will be scrapped and the bank announced plans to trim its proposed dividend payouts.

Shares in the Swiss bank were half a percent lower shortly after the start of trade in Zurich. The stock has fallen around 20% since the collapse of Archegos Capital was first revealed.

Credit Suisse's share price has sunk in recent weeks. Photo: Yahoo Finance UK
Credit Suisse's share price has sunk in recent weeks. Photo: Yahoo Finance UK