Credit Suisse sees 600m Swiss franc Q2 hit from Archegos

[ZURICH] Credit Suisse Group said it expects a 600 million-franc (S$869.3 million) second-quarter hit from Archegos Capital Management collapse, adding to the bank's woes after a US$4.8 billion blow from the US hedge fund's collapse and the Greensill Capital debacle left it nursing large losses and investors questioning the bank's strategy and leadership.

The Swiss bank posted a lower-than-expected loss of 252 million francs for the first quarter, though said that it has been asked to add about 1.9 billion francs of capital by Swiss regulator Finma, which is also starting enforcement proceedings against it. The Swiss bank also said it placed two notes convertible into 203 million shares to strengthen its capital position.

Thomas Gottstein is battling to rescue a terrible start to the year - and possibly his short tenure as chief executive officer - after Credit Suisse was hit harder than any other competitor by the collapse of Archegos, the family office of US investor Bill Hwang.

The timing of the blow up could hardly have been worse, coming just weeks after Credit Suisse found itself at the centre of the Greensill Capital scandal, when it was forced to suspend investment funds.

The double whammy wiped out a year of profit and left Mr Gottstein fighting to demonstrate to incoming chairman Antonio Horta-Osorio that he's of the right mettle to carry the bank through one of the most difficult periods in its recent history.

In the aftermath of the two debacles, the bank replaced investment banking head Brian Chin and chief risk officer Lara Warner, along with a raft of other senior executives including equities head Paul Galietto and the co-heads of the prime brokerage business, which was at the centre of the Archegos losses.

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The bank also suspended its share buyback and cut the dividend, while leaving investors in the dark on the expected full financial impact of the two incidents.

Last week, Credit Suisse unloaded about US$2 billion of stocks tied to the Archegos blowup in the second such block sale since the bank wrote down the bulk of its exposure in the first quarter and said on Thursday its exited 97 per cent of related positions in the matter.

The Greensill debacle is also far from over. Credit Suisse has so far returned about half the US$10 billion in investor money held by the funds at the time of their suspension.

While the bank marketed the funds as among the safest investments it offered, investors are left facing the prospect of steep losses as the assets are liquidated. Credit Suisse is leaning toward letting clients take the hit of expected losses in the funds, a person familiar with the discussions said earlier this month.

The Greensill incident also led to the head of the asset management unit, Eric Varvel, being replaced and the removal of the business from direct oversight of the wealth management unit.

The impact for Credit Suisse from both Archegos and Greensill could add up to US$8.7 billion, according to JPMorgan analysts Kian Abouhossein and Amit Ranjan.

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