The Swiss loan scandal is growing as rivals progress
(Bloomberg) – In an era of prosperity for investment banks, Credit Suisse Group AG is preparing from one crisis to another and then another – this time, with a $ 4.7 billion write-off related to the trading of one billion investors Bill Hwang. – the largest, which is still linked to market-shaking losses earned by Hwang’s Archegos Capital Management – sparked a comprehensive change in management at the Swiss bank on Tuesday and cast new doubt on its plaid risk management records. It contains a catalog of costly mistakes at Credit Suisse – Greensill Capital’s latest collapse – into what was supposed to be the beginning of a more stable era under CEO Thomas Gottstein. At a time when investment banks are feeding on market activities and arranging deals, Credit Suisse is under increasing pressure to convince shareholders and clients that they can put the house in order and remain a vital, independent force in global banking. After the company announced plans to reduce dividends and suspend share buybacks, analysts at JPMorgan Chase & Co. they have reduced their recommendations for stocks that have already broken with peers in decline this year. “The constant negative news flow could have an impact on the rest” of Credit Suisse’s business, analysts Kian Abouhossein and Amit Ranjan wrote in a note, lowering their rating to neutral from overweight. “In addition to the impact of various changes in governance and regulatory oversight,” they wrote, the bank may “have to pursue a strategy of” preserving capital “that could halt growth. David Herro of Harris Associates, a major shareholder in Credit Suisse, said the bank’s losses should serve as a “wake-up call” to accelerate cultural change as President Urs Rohner prepares to surrender to Lloyds Banking Group Plc CEO Antonio Horta-Osorio later this month. Rohner offered to waive the compensation for 2020 of 1.5 million francs. Another longtime supporter of the bank, former Qatari Prime Minister Sheikh Hamad bin Jassim Al Thani, will suffer a personal hit after vehicles connected to him invested about $ 200 million in Credit Suisse funds led by Greensill, people familiar with the matter say. As a former head of Qatar’s investment administration, Sheik Hamad has turned Qatar into one of the Swiss bank’s largest shareholders. Recognizing the need for profound change, Credit Suisse on Tuesday replaced the head of the investment bank and risk director, along with several other executives. Gottstein, who took office in February last year after a spy scandal toppled his predecessor, told the Neue Zuercher Zeitung that the bank has no sacred cow in terms of strategy. “Serious lessons will be learned,” he promised in a statement. The loss of Archegos is “unacceptable.” Although the Swiss bank was not the only firm to help Hwang’s family office raise large positions in a relatively small number of stocks, rivals including Goldman Sachs Group Inc. and Deutsche Bank AG, were able to relax exposures quickly with minimal damage. Credit Suisse has now depleted much of Archegos ’exposure, helped by $ 2.3 billion in sales this week. But the impact of that latest alienation and any remaining positions could affect second-quarter results, according to someone familiar with the matter. Double hits by Archegos and Greensill have put the bank on track for a second consecutive quarterly loss at a time when investment banks around the world are still focused on the unexpected downturn caused by the market turmoil of the coronavirus pandemic. The five largest U.S. firms increased trade revenue by more than a third last year, to the highest in at least a decade. JPMorgan’s Wall Street unit generated the highest revenue and profit in the fourth quarter ever. Deutsche Bank is among the firms that said their investment banks are starting a strong start this year. A Jefferies Financial Group Inc. it has already reported a 81% jump in capital market revenues in the first fiscal quarter ended Feb. 28. In a report on its core business on Tuesday, Credit Suisse noted that issues such as Archegos negate “the very strong performance our investment banking businesses have otherwise achieved” as well as higher profits in wealth and asset management units. The firm is still ready give news of the impact of last month’s collapse of Greensill Capital, which helped manage $ 10 billion of investment funds offered by a Swiss bank to asset management clients.Credit Suisse is leaning toward allowing clients to assume expected losses in those funds, the person said. Among the executives who left the wrong steps were investment bank chief Brian Chin and risk chief Lara Warner.Gottstein had previously removed Eric Varvel from his role in asset management after the fall of Greensill.In a staff memorandum Monday, Credit Suisse also announced at least five more departures, including Chief Tr shares of Paul Galietta.Christian Meissner, a former CEO of Bank of America Corp., who joined Credit Suisse in October, will take over from China next month. Joachim Oechslin, meanwhile, will become head of risk, a role he held until 2019 when Warner took office. Thomas Grotzer has been appointed interim head of business coordination. The bank reduced its dividend proposal for 2020 to 10 centimeters per share, from about 29 centimeters, and suspended the share buyback until its Tier 1 share capital ratio, a key measure of capital strength, returned to the target level. Credit Suisse said it expects a CET1 ratio of at least 12% in the first quarter. The target was at least 12.5% in the first half of this year. The bonuses of top executives for last year have been lifted. A loan disbursement break for Switzerland will not stop the fall of Archegos: React. The Zurich-based bank was one of several global investment banks that eased Archegos ’leverage bets and tried to achieve some sort of dormancy to discover how to unwind positions without causing panic, people familiar with the matter said. The strategy failed as rivals rushed to reduce their losses. “After almost two weeks, it is still unclear how the bank managed to collect 4.4 billion francs for one client in a major brokerage business, which we estimate generates less than 1 billion francs in revenue annually,” JPMorgan analysts wrote. banks that dealt with Archegos, only Nomura Holdings Inc. hinted at the potential to hit billions of dollars, saying it could lose as much as two billion dollars.Credit Suisse’s latest stores came more than a week after several rivals threw their The bank entered the market in block transactions related to ViacomCBS Inc., Vipshop Holdings Ltd. and Farfetch Ltd., said a person familiar with the matter.The shares were trading well below where they were last month before With the write-off of Archegos, Credit Suisse may need to set aside 2 billion francs for litigation in the coming years. for Greensill, according to JPMorgan analysts. lender Greensill Capital borrowed from a bank and helped manage a group of debt funds that were on the market as one of the safest products. Now the funds have been frozen and are being scrapped after Lex Greensill went bankrupt due to doubts about its lending practice.Credit Suisse said it would provide updated information on the funds in the next few days. (Adds a shareholder comment in the fifth paragraph.) For more articles like this, visit us at bloomberg.com Subscribe now to continue to be at an advantage with the most reliable business news.