Credit Suisse to take US$450m charge on hedge fund York

[ZURICH] Credit Suisse Group expects to book a US$450 million impairment on its stake in York Capital Management as the US firm winds down most of its hedge-fund strategies, the latest blow for the bank after a series of setbacks this year.

The charge, which could still change, will be booked in the fourth quarter in the asset management business, the Zurich-based bank said Tuesday. Credit Suisse agreed to take a 30 per cent stake in York in 2010, offering to pay at least US$425 million at the time to give clients access to alternative investments.

The latest blow caps a tough year for chief executive officer Thomas Gottstein, who has had to contend with fund closures at the bank's asset management unit, losses on loans to wealthy clients and lackluster trading results. Mr Gottstein, who took over in February, has started a strategic review of the asset management operations as he simplifies the bank's organisation.

The unit has been through a rough year as hedge funds struggled to perform in the pandemic. Credit Suisse has been closing down funds and laying off employees at its alternatives business, with actions including shuttering a quantitative strategy and taking a US$26 million charge on seed capital in a US real estate vehicle in the third quarter, chief financial officer David Mathers said in a recent interview. Aventicum Capital Management, a joint venture with the Qatar Investment Authority, is closing two groups of funds and returning capital to investors, Credit Suisse said last month.

Mr Gottstein said in September that the bank is planning a strategic review of asset management over the next 12 months. For now, he has ruled out a sale or merger. The bank last month indicated it expects more restructuring costs and potential mark-downs as it continues to review the portfolio of alternative investments.

The Swiss bank's asset management operation is split between a traditional business with long equity and fixed-income strategies sold largely to its private banking clients, and alternative strategies in the US consisting of wholly owned hedge funds, a large credit business and a number of smaller funds and external investments.

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York, started in 1991 by Jamie Dinan, is winding down most of its hedge fund business and retooling to focus on long-term products after "a year marked by tremendous upheaval and disruption," according to a letter to clients. Co-chief investment officer Christophe Aurand will be leaving and William Vrattos will take over as sole CIO, chief executive officer Dinan wrote in the letter seen by Bloomberg News.

Mr Dinan has seen his firm's assets tumble from their US$26 billion peak in 2015. York Capital represented about 1 per cent of the 438 billion francs (S$644 billion) overseen by Credit Suisse's asset management unit as of the end of 2019.

The charge on the York Capital stake will reduce a key measure of Credit Suisse's capital strength, the so-called common equity Tier 1 ratio, by 7 basis points this quarter, but it won't change that bank's plans to return capital to shareholders.

BLOOMBERG