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Sources tell FOX Business’s Charlie Gasparino that Wall Street believes the two banks involved could be ‘trapped’ in trading to settle positions with Archegos.
More and more clouds are emerging for Credit Suisse Group AG after the bank’s outlook was reduced due to fallout from the unwinding of positions held by Archegos Capital Management.
Shares of the Zurich-based lender fell 4.82% on Wednesday, extending the loss since news of the hedge fund’s liquidation broke over the weekend at 19%.
S&P Global Ratings downgraded its outlook on Credit Suisse to “negative”, suggesting its long-term A + credit rating could be downgraded, after the Zurich-based lender warned the episode could have a “significant impact” and material ”on his prime. quarterly results. S&P confirmed all of the bank’s other credit ratings while also downgrading this outlook.
“We believe Credit Suisse can handle the potential financial losses due to its large capitalization and strong underlying earnings, but the incident raises questions about the quality of risk management, risk appetite of the group and the adequacy of the risk-return profile, ”wrote the head office in Frankfurt. analyst Anna Lozmann.
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She added that the negative outlook reflects the view that “potential material losses” could arise. The rating company fears that the idea of a single client could have such an impact could reveal other shortcomings in the group’s risk management system.
Credit Suisse was already facing questions about its risk management due to its exposure to Greensill, a financial services firm focused on supply chain finance that filed for bankruptcy earlier in March.
S&P Global expects risks to Credit Suisse “to remain contained,” but losses from Greensill and Archegos could “consume a significant chunk” of the bank’s 2021 results.
According to the analyst, the bank’s “strong capital cushion” should serve as a “second line of defense” against adverse scenarios.
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S&P Global warns that it could downgrade its credit ratings on Credit Suisse over the next 12 to 24 months if new risk management issues or material litigation risks arise, among others.
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