Credit Suisse execs out as bank takes $4.7 billion hit from hedge fund collapse
The collapse last month of US hedge fund Archegos Capital cost Credit Suisse nearly $4.7 billion and two of the bank's top executives their jobs.
The Swiss bank said Tuesday that it was likely to report a pretax loss of 900 million Swiss francs ($959 million) for the first quarter of this year after taking a charge of 4.4 billion Swiss francs ($4.7 billion) in respect of the failure of Archegos.
"The significant loss ... relating to the failure of a
US-based hedge fund is unacceptable," CEO Thomas Gottstein said in a
statement. "Serious lessons will be learned. Credit Suisse remains a
formidable institution with a rich history."
Credit Suisse (CS) said that its top investment banker Brian
Chin and chief risk officer Lara Warner would both be leaving the bank. Other
members of the executive board will not receive bonuses for 2020, and board
chairman Urs Rohner will give up 1.5 million Swiss francs ($1.6 million) in
compensation.
Credit Suisse also said it would slash its dividend and
suspend share buybacks.
Archegos used borrowed money to build massive positions in
stocks including media companies ViacomCBS (VIACA) and Discovery (DISCA), and
was unable to pay back lenders when share prices dropped.
The implosion of the hedge fund, which managed the fortune
of investor Bill Hwang, has triggered calls for increased regulation of US
firms that invest on behalf of families or a small number of clients. Japan's
Nomura (NMR) was also among the banks exposed to losses when Archegos
collapsed. It has warned of losses of up to $2 billion. Another Japanese
lender, Mitsubishi UFJ Securities (MBFJF), is expecting a loss of about $300
million.
"We need transparency and strong oversight to ensure
that the next hedge fund blowup doesn't take the economy down with it,"
Democratic Sen. Elizabeth Warren said in a statement last month.
One scandal after another
Archegos is the second major stumble for Credit Suisse in
recent weeks. Earlier in March, it froze $10 billion in investment funds
connected to failed UK supply chain finance firm Greensill Capital, which
provided cash advances to companies owed money by customers.
The bank's reputation has also been damaged by an accounting
scandal at Luckin Coffee. Credit Suisse acted as an underwriter when the
company went public on the Nasdaq in 2019. The Chinese firm was pulled off the
US exchange last year after it fraudulently inflated sales.
The missteps have weighed on the bank's stock. Shares in
Credit Suisse have fallen by more than 10% this year, and have lost roughly a
quarter of their value since the start of the coronavirus pandemic. Rival Swiss
bank UBS (UBS) has gained 21% so far this year, while the KBW Bank Index, which
tracks 24 US banks, is up 25%.
Credit Suisse said in a statement that its involvement with
both Archegos and Greensill "require substantial further review and
scrutiny."
"The board of directors has launched investigations
into both of these matters which will not only focus on the direct issues
arising from each of them, but also reflect on the broader consequences and
lessons learned," it added.
Gottstein was appointed CEO in early 2020 when his
predecessor Tidjane Thiam quit after Credit Suisse admitted spying on former
employees. Thiam denied knowledge of the surveillance operations but said they
had "disturbed" the bank and should not have happened on his watch.
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