Credit Suisse announced Thursday that it suffered a first-quarter loss on loans to the collapsed mutual fund Archegos Capital Management. This debacle has led the Swiss financial regulator to investigate whether the bank has done poorly in monitoring the risk of its investments.
The loss of 252 million Swiss francs, about $ 275 million, from January to March was due to a loss of 4.4 billion Swiss francs by Archegos, which erased a sharp increase in sales. Credit Suisse announced Thursday that it had sold bonds to investors to raise $ 2 billion to support its capital.
The bank expects Archegos to lose around $ 655 million in additional losses once its engagement with the company is completed, Credit Suisse CEO Thomas Gottstein said during a conference call with reporters Thursday.
The Zurich-based bank has suffered a number of disasters this year that have seriously damaged its reputation and finances. Swiss regulators are also investigating a spy scandal and the $ 10 billion sale by Credit Suisse that was packaged by Greensill Capital. Funding was based on funding for companies, many of which had low credit ratings or were not rated at all. Greensill collapsed in March and his ties with former UK Prime Minister David Cameron sparked a political scandal.
Mr Gottstein promised on Thursday that Credit Suisse would revise its risk tracking systems to avoid future disasters. Several top executives have already left the bank as part of a management reorganization, including Lara Warner, the Chief Risk and Compliance Officer.
Credit Suisse also plans to reduce the size of a unit serving hedge fund clients that was involved in Archegos’ losses. Mr Gottstein declined to say whether the debacle would lead to significant changes at Credit Suisse’s investment bank, which has a strong presence in New York.
However, he suggested that Credit Suisse would not withdraw from investment banking. “The underlying results show that the strategy is working,” he told reporters. “I wouldn’t say we should throw the entire strategy overboard because we had two disappointing incidents.”
Without the loss of Archegos, Credit Suisse would have achieved a pre-tax profit of 3.6 billion Swiss francs, according to the bank. Sales for the quarter rose 30 percent to 7.6 billion Swiss francs as Credit Suisse brought in fees from brisk trading in the equity and bond markets.
The bank will certainly face an intensive official review in the coming months. The Swiss supervisory authority known as Finma said it would “particularly investigate possible deficiencies in risk management” at Credit Suisse. Finma also said it would “continue to exchange information with relevant authorities in the UK and US”.
Mr Gottstein admitted Thursday that the bank had received inquiries from regulators in the US and the UK but did not provide details.
He declined to confirm a report in the Wall Street Journal that Credit Suisse’s exposure to Archegos had reached more than $ 20 billion before the fund collapsed in late March. Mr Gottstein admitted that Credit Suisse was one of the banks that Archegos was most exposed to.
The quarterly loss, which Gottstein described as “unacceptable”, compared to a profit of 1.3 billion Swiss francs in the first quarter of 2020.
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