Credit Suisse serves investors gruel as Wall Street feasts on deals

Zurich

WHILE Wall Street rivals feast off a boom in trading and deals, Credit Suisse is stuck in limbo.

The collapse of Archegos, a US investment fund, has left the Swiss bank nursing an anticipated pre-tax loss of nearly US$1 billion for the first quarter. That, plus the demise of another client, Greensill Capital, have triggered internal and external probes and the ousting of a swathe of executives.

Investors seeking clarity on what's next for Credit Suisse's investment bank, at the heart of the Archegos debacle, and its asset management division, which ran US$10 billion in funds linked to Greensill, are unlikely to get final answers on Thursday, when the bank publishes first quarter results.

Chief executive Thomas Gottstein has said that Credit Suisse's incoming chairman, former Lloyd's boss Antonio Horta-Osorio, will likely undertake a strategic review of the bank when he joins next month.

Buoyed by a boom in capital raising and deals, Credit Suisse was on the cusp of a bumper start to 2021 before a 4.4 billion franc (S$6.4 billion) loss from Archegos.

Credit Suisse has emerged as the bank hardest-hit from its exposure to Archegos, which collapsed when it couldn't meet margin calls. Analysts at JPMorgan say Credit Suisse may face another loss of around US$400 million this quarter from unwinding Archegos-linked stocks. Credit Suisse has declined to comment on the estimate.

Stripping out the 4.4 billion franc charge, the implied underlying pre-tax profit of around 3.5 billion francs would have represented the bank's best quarter operationally in at least a decade.

US rivals, some of which were quicker to exit trading positions as Archegos collapsed, produced forecast-beating profits. Goldman Sachs' first quarter net income rose nearly sixfold. Morgan Stanley reported a 150 per cent jump in profit despite disclosing an almost US$1 billion loss from Archegos.

Credit Suisse shareholders, meanwhile, are facing a slashed dividend, halted share buybacks and a share price down 15 per cent so far this year. The bank has said further buybacks will have to wait until it returns capital to target ratios and is able to restore its dividend.

The Financial Times reported last week that the group had slashed costs through bonus cuts and other one-off items. While the move helped bolster capital it could hurt the bank's franchise. Widespread departures are a real worry for management, one source familiar with the bank's operations said.

"You have many areas which likely performed exceptionally well in the first quarter, and bankers expect to be paid for exceptional performance. So this becomes a major issue for staff retention," Vontobel analyst Andreas Venditti said. "The options are limited: either they face the risk of losing staff, or they have to make up for this gap with higher accruals in the remaining three quarters."

It had previously aimed for a common equity tier 1 ratio of at least 12.5 per cent for the first half of 2021, but now expects a first quarter ratio of at least 12 per cent.

Credit Suisse still faces questions over how it will address US$2.3 billion at-risk funds that it is seeking to return to investors following the collapse of its Greensill-linked supply chain finance funds.

It has, so far, distributed US$4.8 billion to clients. REUTERS