Credit Suisse Q1 2021 results: hedge fund Archegos weighs in

LONDON – Credit Suisse on Thursday reported a net loss of 252 million Swiss francs ($ 275 million) for the first quarter, at a time of increased pressure on the bank.

He said the loss reflected a “significant charge regarding the issue of US-based hedge funds in 1Q21 (Q1), offsetting the positive performance of wealth management and investment banking.”

It comes after the Swiss lender warned of heavy losses earlier this month following a scandal involving Archegos Capital, a US-based hedge fund, who collapsed after taking too many risks. As a result, Credit Suisse was hit by 4.4 billion Swiss francs, which it said had “significantly impacted” first quarter results.

In addition, investment bank CEO Brian Chin and chief risk and compliance officer Lara Warner have both resigned. The management board decided to waive the bonuses for the year 2020 and also reduced the proposed dividend.

Credit Suisse said on Thursday that adjusted net income would have reached 7.4 billion Swiss francs excluding significant items were it not for the Archegos situation. This would have been a 35% increase from a year ago.

Aside from the Archegos scandal, the bank’s chief executive, Thomas Gottstein, told CNBC’s Geoff Cutmore on Thursday that it was “one of our best quarters in Credit Suisse history. Certainly the best quarter in history. Last 10 years “.

“The loss we suffered at Archegos was unacceptable and we had to take action in terms of management changes. We are reducing our exposure in this sector, we are reviewing our risks, controls and systems in this area,” added Gottstein.

In March, Credit Suisse also adjusted its asset management activities and suspended bonuses after the collapse of Greensill Capital, a UK supply chain finance company.

In his interview with CNBC, Gottstein said he did not offer to resign from the board following the Archegos and Greensill cases.

“Look, this is the time to act, to remedy and to take the business to the next level. Now is the time to find solutions. We had a very difficult first quarter in terms of these two incidents, but at the same time, the operating performance that you saw in the first quarter proved that our strategy was right and that we are on the right track, ”said Gottstein.

When asked if the bank’s culture is to take too much risk, he replied, “We don’t have a risk culture problem.”

Credit Suisse said on Thursday it had liquidated 97% of its trading positions linked to hedge fund Archegos and expected to report an additional second-quarter loss of around 600 million Swiss francs.

The Swiss Financial Market Supervisory Authority said on Thursday it had opened enforcement proceedings against Credit Suisse over its losses from the Archegos collapse. The regulator also said it initiated proceedings last month against the bank over the Greensill case.

“To complement the measures taken by the bank, FINMA has also demanded various risk reduction measures,” said the Swiss authority in a statement.

Other highlights from Credit Suisse’s first quarter results:

• The CET 1 capital ratio, a measure of bank solvency, stood at 12.2%, up from 12.9% at the end of 2020.
• Net sales reached 7.6 billion Swiss francs, compared to 5.2 billion Swiss francs in the fourth quarter of last year.
• Total operating expenses fell to 3.9 billion Swiss francs from 5.2 billion Swiss francs in the previous quarter.
• Its investment banking division reported net sales of $ 3.9 billion, an 80% increase from a year ago.
• The wealth management division reported net sales of 3.9 billion Swiss francs in the quarter, up slightly from last year.

Responding to the results, Octavio Marenzi, CEO of consultancy firm Opimas, said in an email: “It’s a shame – the Credit Suisse investment bank was about to experience one of its best. quarters, before expenses related to Archegos. “