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LONDON – An investigation into Credit Suisse’s relationship with collapsed US hedge fund Archegos Capital on Thursday revealed that the Swiss bank had “failed to manage risk effectively.”
The Archegos saga made headlines in March, with Credit Suisse being the most affected of several international banks involved.
Archegos has built up massive holdings in certain stocks through swaps, a type of derivative that investors trade over-the-counter or among themselves without having to publicly disclose holdings and are heavily leveraged. But a massive sell-off of those stocks forced the hedge fund to inject more liquidity, amassing a forced liquidation of more than $ 20 billion.
A report released Thursday based on an independent external investigation, which was commissioned by the bank’s board of directors, found an inability to effectively manage risk in the business unit’s blue chip service activities. Credit Suisse investment bank “by the first and second line of defense as well as a lack of escalating risk.”
“He also found a failure in controlling limit violations in both lines of defense due to insufficient discharge of supervisory responsibilities within investment banking and risk, as well as a lack of prioritization. risk mitigation and improvement measures, “the statement said. noted.
One of the findings of the investigation said that “it seems likely that Archegos has deceived Credit Suisse and obscured the true extent of its positions, which Archegos has amassed amid an unprecedented global pandemic.”
“That said, the company and Risk had a lot of information well in advance of the events of the week of March 22, 2021 that should have prompted them to take steps to at least partially mitigate the significant risks Archegos posed to Credit Suisse,” said he added.
The investigation also pointed out that no one at the Swiss bank “seemed to fully appreciate the serious risks Archegos’ portfolio posed” even though “these risks were not hidden. They had been in full view since at least September 2020”. .
Nonetheless, the investigation concluded that there had been no “fraudulent or illegal conduct” or bad intentions on the part of him and his employees.
In the wake of the sandal, his investment bank chief Brian Chin and chief risk and compliance officer Lara Warner have resigned. The management board decided to waive the bonuses for the year 2020 and also reduced the proposed dividend.
Thomas Gottstein, CEO of Credit Suisse, told CNBC on Thursday: “We take this event very seriously not only for the scale of it, but also for the way it happened and we want to learn all the right lessons from it.”
He also told CNBC’s Geoff Cutmore that Credit Suisse wanted to make sure that “an accident like Archegos doesn’t happen again.”
78% drop in profits
The result of the investigation was released at the same time as the Swiss lender released its second quarter results.
Credit Suisse said its net income reached 253 million Swiss francs ($ 278.3 million) for the three-month period ending in June, falling short of expectations from its own analyst survey. With a figure of 1.16 billion Swiss francs for the same period last year, that meant that the net profit had fallen by 78% on the year.
At the end of the first quarter, Credit Suisse reported a blow of 4.4 billion Swiss francs due to the Archegos saga. However, Credit Suisse said on Thursday it was taking an additional pretax loss of 594 million Swiss francs from the collapse of the hedge fund. Credit Suisse was also faced with another scandal involving Greensill Capital which filed for administration earlier this year.
Going forward, the bank has said it wants to take a “more cautious approach to risk” and operate with a CET1 ratio, a measure of bank solvency, of at least 13%.
The stock fell more than 4% at the start of European trading hours on Thursday.
— CNBC Yun li contributed to this report.
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