Credit Suisse flags 848m francs Russia net credit exposure

[LONDON] Credit Suisse Group said it had 848 million francs (S$1.2 billion) of credit exposure to Russia at the end of last year, while warning that an increase in trading and hedging activity after the invasion will likely be offset by higher provisions and lower deal-making.

Russia exposure includes derivatives and financing at the investment bank, trade finance at the Swiss business and lombard and other loans within private banking, according to a statement from the lender on Thursday (Mar 10). Credit Suisse said it has minimal exposure to sanctioned individuals within wealth management and said its Russia market risk exposure isn't significant.

The Zurich-based lender is the latest among a slew of European banks seeking to reassure investors that they can absorb the shock of the invasion, after a widespread sell-off of European stocks turned the sector from one of the best-performing this year to the worst.

Credit Suisse still maintains an office in Moscow and is seen as a key bank for managing expatriate Russian wealth. "We have reviewed our positions and believe that the bank's exposure in relation to Russia is well-managed, with appropriate systems in place to address associated risks," chief executive officer Thomas Gottstein said. "As a matter of principle and policy, Credit Suisse applies all sanctions, in particular those issued by the EU, the United States and by Switzerland."

The bank is one of the few to give an indication as to how the invasion is affecting business, at least in the short term, signalling that demand for trading and hedging is up again, along with the fear of loans going bad. That's a similar dynamic to during the onset of the pandemic. The resurgence in trading is, though, likely to be offset by a reduction in capital market issuance.

The bank said it would be "premature" to estimate the longer-term impact of the war on the global economy, markets and clients' risk appetite. Credit Suisse is monitoring several factors that could limit its ability to settle transactions or realise collateral, including open transactions with Russian banks and non-bank counter-parties.

The bank's Moscow office has approximately 125 employees working across wealth management and the investment bank. The firm said it has "planned for a number of potential scenarios", without giving more details.

Net assets held in the bank's Russian operations were 195 million francs as of Dec 31. JPMorgan Chase & Co's trading head Troy Rohrbaugh said that a lot of clients are under "extreme stress" tied to the impact of the invasion, indicating the volatility was also affecting the US bank's markets revenue. Deutsche Bank may also update investors on its key fixed income business when it holds an investor day on Thursday.

Wealthy Russians with links to President Vladimir Putin have seen their assets frozen across the world, while other rich bank clients who borrowed against Russian assets have to come up with more collateral after those securities plunged in value.

Bloomberg reported previously that UBS Group and Credit Suisse are both triggering margin calls on some customers who use Russian bonds as collateral, after marking down the value of debt issued by the country and its corporations.

Earlier this week, UBS said it has about US$200 million exposure to Russian assets that were used as collateral in loans to clients at its wealth unit. UBS also identified "a small number" of wealth management clients who have been sanctioned in response to Russia's invasion of Ukraine, it said in its annual report, published Monday. Those clients had less than US$10 million in total loans outstanding as of Mar 3. BLOOMBERG

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