ZURICH (Reuters) – Credit Suisse has substantially reduced the vast bulk of its exposure to Archegos, a source familiar with the matter said, adding some residual risk remained despite its positions having been substantially eliminated.
Switzerland’s second-largest lender on Tuesday announced an estimated loss of 4.4 bln Swiss francs ($4.69 bln) from its relationship with Archegos Capital Management LP after offloading over $2 billion worth of stock to end exposure to the troubled investor.
The scandal-hit bank now expects to post a loss for the first quarter of around 900 million Swiss francs.
The Archegos fallout is the second major scandal for Credit Suisse in just over a month after the collapse of Greensill Capital, which led to the closure of its $10 billion supply chain funds which invested in bonds issued by Greensill.
That matter had not resulted in a material loss for the bank in the first quarter, the source said, as the bank does not hold trading exposure to Greensill.
(Reuters) – Credit Suisse Group on Tuesday announced an estimated charge of 4.4 billion Swiss francs ($4.7 billion) from its relationship with Archegos Capital Management LP, suspended a share buyback programme and cut its proposed dividend.
Following are reactions to the development.
MICHAEL KUNZ, ANALYST AT ZUERCHER KANTONALBANK
“An individual case has ruined the otherwise successful work of the bank as a whole in the first quarter. At least – in our opinion – personnel consequences have now been taken.
The main damage, however, has been inflicted on shareholders, who have to make do with a lower dividend and a suspended share buyback.
In view of the bank’s vulnerability to risk….it does not seem appropriate to us to recommend bets on the securities of CS Group.”
ANDREAS VENDITTI, ANALYST AT BANK VONTOBEL
“CHF 4.4 bn Archegos charges are at the higher end of the range. However, the 1Q21 pre-tax loss is limited to CHF 0.9 bn thanks to very strong operating results. While the short-term impact seems less severe than feared, the full consequences from the reputational loss will only be visible over time.
“CEO Gottstein is quoted saying “serious lessons will be learned”. In addition to the Executive Board changes, we look forward to hear about the “broader consequences” of the Board’s investigations.”
NEW YORK (Reuters) – Credit Suisse Group AG will on Tuesday detail losses from its relationship with Archegos Capital Management LP after dumping over $2 billion worth of stock to end exposure to the troubled investor, two sources familiar with the matter said.
The episode, which analysts have said could cost the Swiss bank several billion dollars, is also expected to result in the departures of Chief Risk Officer Lara Warner and Brian Chin, the bank’s investment banking head, the sources said.
Credit Suisse and Archegos declined to comment. Warner and Chin did not respond to requests for comment.
The two executives are paying the price for a year in which Credit Suisse’s risk management protocols have come under harsh scrutiny, with two major relationships turning sour in quick succession, saddling the bank with what JPMorgan Chase & Co analysts estimate could add up to $7.5 billion.
Archegos, a private investment vehicle of former hedge fund manager Sung Kook “Bill” Hwang, fell apart late last month when its debt-laden bets on stocks of certain media companies unraveled. Credit Suisse and other banks, which acted as Archegos’ brokers, had to scramble to sell the shares they held as collateral and unwind the trades.
While sources have said some banks, including Goldman Sachs Group Inc, Morgan Stanley and Deutsche Bank AG, managed to exit the trades without taking a hit, others have ended up with losses. Japan’s Nomura Holdings Inc has flagged a possible $2 billion loss, for example. Nomura declined to comment.
For Credit Suisse, the Archegos episode came just weeks after the demise of another major client – the British finance firm Greensill. Credit Suisse had marketed funds that financed Greensill’s operations. Warner’s role has come under scrutiny in the aftermath of that firm’s collapse as well.
Credit Suisse’s share price has fallen by a quarter in the past month as investors assess the hit to the bank’s bottom line and credibility, overshadowing an otherwise strong start to the year. The episodes have also put pressure on Chief Executive Thomas Gottstein who has been trying to move Credit Suisse on from another string of bad headlines, spanning a spy scandal that ousted predecessor Tidjane Thiam to a $450 million write-down on a hedge fund investment.
UNWINDING THE TRADES
Hwang, a former Tiger Asia manager, ran into trouble following a March 24 stock sale by media company ViacomCBS Inc. Archegos was heavily exposed to ViacomCBS, sources said, and the slide in stock set off alarm bells at its banks, which called on the fund for more collateral.
When the firm could not meet the demand, the banks started selling the collateral, which included shares of Baidu Inc and Tencent Music Entertainment Group, among others.
While some banks were able to offload their collateral earlier, Credit Suisse still had shares left. On Monday, it offered 34 million shares of ViacomCBS priced between $41 to 42.75; 14 million American depository receipts of Vipshop Holdings Ltd between $28.50 and $29.50; and 11 million shares of Farfetch Ltd, priced between $47.50 and $49.25 in secondary offerings, a source familiar with the situation said.
The shares were the remaining holdings tied to Archegos that Credit Suisse needed to sell before tallying up losses, the source said.
ViacomCBS shares, which traded at a record of $101.97 in March, closed down 3.9% at $42.90 in regular trading. Vipshop was down 1.19% at $29.78, while Farfetch shares fell nearly 6.1% to $49.69.
LONDON (Reuters) – Shares in Nomura and Credit Suisse fell further on Wednesday, with a collective $9 billion wiped off their market value so far this week as the banks braced for big losses from the blow-up of U.S.-based hedge fund Archegos Capital.
Credit Suisse and Nomura were slower than rivals to cut their exposure to Archegos, a family office run by former Tiger Asia manager Bill Hwang. Global lenders that acted as brokers for Archegos may have to write down more $6 billion after the fund defaulted on payments, Reuters has reported.
Credit Suisse shares fell 4% on Wednesday, bringing this week’s decline to nearly 20%. Already under pressure from its exposure to failed supply chain finance firm Greensill, Credit Suisse’s plans to buy back shares and pay dividends this year could now be at risk, analysts said.
The bank’s market capitalisation has shrunk by five billion Swiss francs since Friday to 25.57 billion Swiss francs ($27.12 billion). Sources estimate Credit Suisse’s losses may total $5 billion but the bank declined to comment.
UBS analysts said “a lot of unanswered questions” remained, referring to Credit Suisse’s involvement first in Greensill and now the U.S.-based hedge fund.
“Outflows? P&L impact? Insurance coverage? Quality of underlying assets? Litigation? Developments around involved partners? Reputational impact? Impact on strategy?” they wrote.
Meanwhile Nomura which has warned of a $2 billion hit from Archegos, fell a further 2.9% following a 0.8% fall on Japanese stock markets on Wednesday. Its market capitalisation has dropped from 2.3 trillion yen ($20.81 billion) to 1.88 trillion yen since Friday, Refinitiv data shows.
Ratings agencies added to the pressure as Moody’s slashed its outlook on Nomura to “negative”, citing potential deficiencies in its risk management process.
Fitch placed Nomura’s viability ratings on “negative watch” citing the potential for material losses arising from transactions with a U.S. client in one of its U.S. subsidiaries as well as questions over the adequacy of Nomura’s controls.
Meanwhile, in derivatives markets the cost of insuring exposure to Credit Suisse and Nomura rose.
Credit Suisse five-year credit defaults swaps (CDS) were trading at 73 basis points, the highest in a year and up 17 bps from Friday’s close, IHS Markit data showed.
That implies a cost of 73,000 Swiss francs a year to insure exposure to 10 million francs worth of Credit Suisse debt for a five-year period.
Nomura CDS were at 52 bps, versus 41 bps on Friday.
Credit Suisse executives earned 12% less in total aggregate compensation in 2020, the bank’s annual report showed on Thursday, as bonuses were hit by legal matters, anticipated credit losses and a hit from a writedown in its asset management business.
Executives were awarded 68.4 million Swiss francs ($74.08 million), the report showed, while CEO pay also fell.
Chief Executive Thomas Gottstein became head of the bank last February after the abrupt departure of predecessor Tidjane Thiam.
ZURICH/TOKYO (Reuters) – Credit Suisse faces questions from regulators and insurers as it grapples with the fall-out from the collapse of $10 billion worth of funds linked to Greensill Capital.
The Swiss bank has hired external firms to help with their inquiries in the wake of Greensill Capital’s insolvency, a source familiar with the matter said on Wednesday.
The head of Credit Suisse’s European asset management arm, which sold the Greensill-linked supply chain finance funds to investors has temporarily stood aside along with two colleagues, the bank said in a memo.
Credit Suisse, which was a key source of funding for the speciality finance firm, selling securities created by Greensill to investors via its asset management arm, is also taking steps to recover a $140 million loan in Australia.
The supply chain financier began to unravel last week after losing insurance coverage for its debt repackaging business, prompting Credit Suisse to freeze funds linked to it.
Switzerland’s second largest bank has hired the external firms in order to expedite the process of returning liquidation proceeds from the funds to investors, the source told Reuters.
Credit Suisse has so far made $3.05 billion worth of payments to investors. It has said further liquidation proceeds will be paid out “as soon as practicable”.
There are questions over the insurance contracts that underpinned Greensill’s securities, which were meant to protect investors in the event of a default.
Japanese insurer Tokio Marine, which provided $4.6 billion of coverage to Greensill credit notes, said that it was investigating the validity of those policies which it inherited when it bought Insurance Australia Group in 2019.
A source familiar with the situation said the policies were directly linked to the $10 billion Credit Suisse funds.
Credit Suisse said in a note to investors on Tuesday it had not been informed of any insurance cancellation “until very recently,” and that existing policies from Insurance Australia had remained unchanged.
The bank declined comment on the Tokio Marine probe.
If Greensill’s lending practices did not meet standards laid out in the insurance contract or were inconsistent with normal accounting rules, then an insurer would have grounds to challenge whether coverage applied, supply chain experts have said.
Greensill declined to comment.
“We have concerns about the validity of all Greensill policies and are conducting an investigation,” Tokio Marine spokesman Tetsuya Hirano said.
Hirano said that the $4.6 billion worth of coverage attributed to Tokio Marine Holdings in court filings did not reflect the likely loss. He declined to comment further.
In Germany, where Greensill runs a bank, financial regulator BaFin has filed a criminal complaint with prosecutors in Bremen, where it is based. The precise details are not known.
BLOW FOR CEO
The funds’ troubles are a blow for Credit Suisse boss Thomas Gottstein, who became chief executive in the aftermath of a spy scandal and just as the coronavirus crisis struck.
The asset management unit behind the Greensill strategy was hit by a large impairment charge on a hedge fund investment in the fourth quarter.
Credit Suisse said in a memo sent to employees on Wednesday that Michel Degen, head of asset management in Switzerland and the EMEA region, was temporarily stepping aside along with managers Luc Mathys and Lukas Haas.
Reuters could not immediately reach Degen, Mathys or Haas for comment. According to their LinkedIn profiles, Mathys ran fixed income at the division and Haas worked in credit risk management. Haas was listed as the fund manager for some of the Greensill funds according to various fund websites.
Meanwhile in Australia, two people familiar with the matter said that Credit Suisse had appointed receivers to recover a bridging loan to a Greensill company.
Credit Suisse was advising Greensill on a potential IPO last year and had lent on expectations the $140 million would be repaid when it listed, one of the people said.
Credit Suisse declined to comment and Greensill did not respond to requests for comment.
The impact of Greensill’s insolvency is also being felt at its largest client, GFG Alliance, an umbrella company for metal tycoon Sanjeev Gupta’s network of steel, aluminium and energy companies.
A spokesman said on Wednesday GFG had appointed an advisory team including boutique advisory house PJT Partners, turnaround advisor Alvarez and Marsal and law firm Norton Rose Fulbright to “support refinancing efforts and in negotiating a standstill agreement with Greensill’s administrator”.
APOLLO TALKS DERAILED
Greensill was in talks to sell a chunk of its operating business to Athene Holding – an annuity seller which recently merged with Apollo Global Management – but these have been derailed after one of the firm’s key technology partners secured a $6 billion credit facility from banks led by JPMorgan, one source familiar with the matter told Reuters.
Taulia, a San Francisco-based financial technology company that had worked closely with Greensill, expressed concern that the Apollo deal would have affected its own business model, which is based on using multiple banks for financing, two separate sources said, speaking on condition of anonymity.
In a statement, Taulia confirmed it had held conversations with Apollo over their plans to purchase parts of Greensill, adding it wanted to continue giving clients “flexibility in the source of funding for early payments.”
JPMorgan, an investor in and strategic partner of Taulia, came to its rescue providing $3.8 billion of an overall $6 billion credit line and reducing the need for an emergency deal with Apollo, the first source said. Other banks including UniCredit, which has a commercial partnership with Taulia, are expected to commit capital and top up the U.S. firm’s facility, this source said. UniCredit declined to comment.
ZURICH (Reuters) – Credit Suisse is winding down its supply chain finance funds which held most of their roughly $10 billion in notes backed by beleaguered Greensill Capital, it said on Friday.
“The fund boards have now decided to terminate the funds. Credit Suisse Asset Management’s priority is to ensure a balance between a timely liquidation of the funds and maximizing value for the investors,” it said in a statement.
(Reuters) – Credit Suisse on Thursday posted a 22% fall in 2020 net profit as a 757 million franc hit from legal charges placed Switzerland’s second-largest lender in the red for the final three months of the year.
The bank posted a 353 million Swiss franc ($392.79 million) net loss for the fourth-quarter, compared with expectations for a 566 million franc loss in its own poll of 18 analysts.
The poll was compiled before the bank settled a legacy residential mortgage-backed security case for $80 million less than it had previously flagged.
“Despite a challenging environment for societies and economies in 2020, we saw a strong underlying performance across Wealth Management and Investment Banking, while addressing historic issues,” Chief Executive Thomas Gottstein said in a statement.
“Looking forward into 2021 and beyond, we aim to further accelerate growth in Wealth Management and deliver sustainable returns in Investment Banking.”
Wealth managers have profited richly off bumper trading and client demand for greater counsel during the COVID-19 pandemic, helping rivals UBS Group AG and Julius Baer Gruppe AG post windfall gains. Credit Suisse, however, faced setbacks in its core business last year everywhere outside Asia.
Outside Asia, only Credit Suisse’s investment bank managed to post profit gain in 2020, as higher expected lending losses and headwind from negative interest rates and a strong Swiss franc bit into earnings.
Factoring out one-off gains that boosted results in 2019 and set it back in 2020, the bank said it would have seen a 6% pre-tax profit gain for the year.
Zurich-based Credit Suisse targets 10% annual earnings growth in its wealth management business over the next three years as it strives towards profit goals.
Gottstein, who became chief executive last February as the novel coronavirus was surging in China, is also reconfiguring Credit Suisse’s investment banking business and targets branch closures and a digital overhaul of its home business to cut costs.
Its standalone international wealth management unit, which covers rich clients outside Asia and Switzerland, saw net revenue dip 17% in 2020, as bumper trading failed to offset the negative impact of lower interest rates and a depressed U.S. dollar.
The division was also hit by a 414 million franc fourth-quarter impairment on a hedge fund equity stake, which impacted its struggling asset management business.
Its Swiss private clients business, covering both wealthy home market customers and the bank’s only retail accounts, saw pre-tax profit dip 16% on the back of weaker revenue and higher provisions for loan losses.
Its Asia-Pacific business, meanwhile, saw revenue rise 4% on higher transaction fees and the region’s stronger recovery from the pandemic. That, however, failed to offset a jump in lending provisions, resulting in a 10% profit decline.
In a reversal of fortunes, Credit Suisse’s investment bank, which has been the focus of overhaul efforts over the past five years, saw a surge in revenue, helping the business to its second consecutive year of profit gain.
Profit grew six-fold from the prior year during the fourth quarter, with higher trading activity helping equity sales and trading rise 5%. Fixed income trading was largely flat and advisory revenue was up 16%, while capital markets revenue leaped by 90%.
The bank proposed a dividend of 0.2926 francs per share, up 5.4%, and said it started a buyback in January targeting a total of 1.0 billion to 1.5 billion francs in buybacks for the year.