Credit Suisse to cut dividend, overhaul senior management and book US$4.7 billion in first-quarter loss from Archegos fallout

Georgina Lee
·4-min read

Credit Suisse said it expects to post a pre-tax loss in its firs-quarter results due on April 22, inclusive of a charge from Archegos Capital Management’s trading losses, becoming one of the largest casualties in the world’s biggest margin call.

The Zurich-based bank will book a charge of 4.4 billion Swiss francs (US$4.7 billion) in the first three months due to losses at a US hedge fund, Credit Suisse said without naming the fund. The charge will push Credit Suisse into a pre-tax loss of around 900 million francs (US$960 million) in the quarter, cancelling out the profit growth in its asset management unit helped particularly by its Asia Pacific division, the bank said in a trading update on Tuesday, adding that figures are still subject to finalisation and review.

“The significant loss in our Prime Services business relating to the failure of a US-based hedge fund is unacceptable,” the bank’s chief executive Thomas Gottstein said in a statement, adding that the case had caused “significant concerns” among stakeholders. “Together with the board of directors, we are fully committed to addressing these situations. Serious lessons will be learned.”

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Archegos’ blowout came to light on March 28, when Goldman Sachs and Morgan Stanley were reported to be among the Wall Street banks and brokers that forced-sold leveraged positions taken by a hedge fund founded by former Tiger Asia trader Bill Hwang. The fund’s financial exposure was estimated at between US$10 billion and US$50 billion. Since the forced selling, Credit Suisse and Japan’s Nomura Holdings said they had incurred losses in connection to Archegos.

Bill Hwang, CEO and founder of Archegos Capital Management and Fuller trustee. SCMP Pictures (UNDATED HANDOUT)
Bill Hwang, CEO and founder of Archegos Capital Management and Fuller trustee. SCMP Pictures (UNDATED HANDOUT)

The episode would scupper the strong growth seen in at Credit Suisse’s investment banking, wealth and asset management businesses combined. The bank’s Asia Pacific business had already been hit by sizeable losses in 2020 linked to entrepreneur Lu Zhengyao, whose Luckin Coffee was expelled from the Nasdaq market amid an accounting scandal. Credit Suisse was the lead underwriter for Luckin’s 2019 initial public offering.

The Swiss bank first revealed on March 29 that it was expecting “highly significant” loss in its first quarter as a result of trading losses tied to the highly-leveraged portfolio of Archegos.

Thomas Gottstein, newly appointed Chief Executive of Credit Suisse, during a news conference in Zurich on September 19, 2016. Photo: Reuters
Thomas Gottstein, newly appointed Chief Executive of Credit Suisse, during a news conference in Zurich on September 19, 2016. Photo: Reuters

The bank employs about 48,770 people globally. Due to the Archegos-related losses, the board of Credit Suisse has proposed cutting total dividend payout for the 2020 financial year to 0.1 franc per share, from the 0.2926 franc per share originally proposed. The dividend cut is part of the agenda of the annual shareholders’ general meeting scheduled on April 30.

The Swiss bank is among one of the prime brokerages hit by the Archegos fallout, which also counts Nomura Holdings, MUFG and Mizuho among other lenders facing big losses.

While Credit Suisse did not offer additional details on the Archegos losses, media reports said the bank unloaded about US$2.3 billion worth of stocks tied to the Archegos blow-up more than a week after rival brokers and banks dumped their shares and skirted losses. These block trades were tied to the shares of ViacomCBS, Farfetch, the Chinese e-commerce platform Vipshop and the dominant Chinese internet search engine Baidu.

Brian Chin, chief executive of the investment bank, and Lara Warner, chief risk and compliance officer will step down from their roles, effective April 30 and April 6 respectively. Thomas Grotzer, who previously served as General counsel and an executive board member at Credit Suisse (Schweiz), will step down from these roles and become interim global head of compliance with immediate effect, the bank said. Joachim Oechslin is appointed as interim Chief Risk Officer.

Chin’s role will be taken over by Christian Meissner, who has served as Credit Suisse’s co-head of international wealth management investment banking advisory and vice-chairman of investment banking since October 2020. All three newly-appointed executives will report to the chief executive Gottstein.

Separately, chairman Urs Rohner has also proposed to waive his 1.5 million francs in chairman fees. This item has already been approved by the board.

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