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Credit Suisse takes $4.7 billion Archegos hit, replaces Warner

A sign of Swiss banking Credit Suisse is seen on a branch in Lausanne on April 6, 2021. - Credit Suisse said on April 6, 2021 that it had taken a $4.7 billion hit from its links to troubled hedge fund Archegos Capital Management, cut dividends and announced the departure of two senior executives. (Photo by FABRICE COFFRINI / AFP) (AFP)Premium
A sign of Swiss banking Credit Suisse is seen on a branch in Lausanne on April 6, 2021. - Credit Suisse said on April 6, 2021 that it had taken a $4.7 billion hit from its links to troubled hedge fund Archegos Capital Management, cut dividends and announced the departure of two senior executives. (Photo by FABRICE COFFRINI / AFP) (AFP)

  • The charge will result in a pretax loss of about 900 million francs for the first quarter, the bank said in a statement Tuesday, putting it on track for its second straight net loss

Credit Suisse Group AG will take a 4.4 billion franc ($4.7 billion) writedown tied to the implosion of Archegos Capital Management and replace more than half a dozen executives in response to the firm’s worst trading debacle in more than a decade.

The charge will result in a pretax loss of about 900 million francs for the first quarter, the bank said in a statement Tuesday, putting it on track for its second straight net loss. Credit Suisse scrapped bonuses for top executives, cut its dividend and suspended share buybacks to protect its capital. Investment bank head Brian Chin and Chief Risk Officer Lara Warner are leaving.

Chief Executive Officer Thomas Gottstein vowed he will draw “serious lessons" as the Archegos loss and the collapse of Greensill Capital last month leave him with little room for further missteps. The firm is the worst-performing major bank stock in the world this year as a strong first two months for its investment bank business are being overshadowed by its exposure to the failed firms.

“I recognize that these cases have caused significant concern amongst all our stakeholders," Gottstein said Tuesday. “Together with the board of directors, we are fully committed to addressing these situations. Serious lessons will be learned."

Credit Suisse fell 0.5% at 9:12 a.m. in Zurich trading. The stock is down more than 11% this year, compared with an 18% gain at local rival UBS Group AG.

In addition to the Archegos writedown, the bank may need to set aside 2 billion francs over the coming years for litigation tied to Greensill, analysts Kian Abouhossein and Amit Ranjan at JPMorgan Chase & Co. wrote in a note.

“The long-term consequences will be felt in the bank over time" as Credit Suisse needs to prioritize capital preservation over growth, the analysts wrote.

Chin and Warner are the highest-ranking executives to leave over the twin hits. Gottstein earlier removed Eric Varvel from his role running asset management after Greensill’s downfall. In a memo to staff Monday, Credit Suisse also announced at least five other departures, including equities trading chief Paul Galietto.

Christian Meissner, the former Bank of America Corp. executive who joined Credit Suisse in October, will take over from Chin next month. Joachim Oechslin will become risk chief in the interim, a role he held until 2019 when Warner took over. Thomas Grotzer was named interim head of compliance.

The bank cut its dividend proposal for 2020 to 10 centimes a share, from about 29 centimes, and suspended its share buyback until its common equity Tier 1 ratio, a key measure of capital strength, returns to the targeted level. Credit Suisse said it expects a CET1 ratio of at least 12% in the first quarter. It had aimed for at least 12.5% in the first half of this year.

Chairman Urs Rohner offered to forgo his compensation for 2020 of 1.5 million francs and bonuses for the executive board have been scrapped for that year.

What Bloomberg Intelligence Says:

Credit Suisse’s buyback pause and reduced dividend to get its capital position back on track isn’t the cure-all for its financial woes, though may fall short of more bearish fears. Our near-term concerns remain the fallout from Greensill costs, knock-on revenue dents to its prime and asset-management units and elevated control costs, along with lingering regulatory and legal challenges.

The Zurich-based bank was one of several global investment banks to facilitate the leveraged bets of Archegos, the family office of former hedge fund manager Bill Hwang. But while many other firms that had prime brokerage relationships with Archegos unloaded their positions with minimal damage, Credit Suisse was caught with major losses. The Swiss bank sold $2.3 billion worth of stocks tied to Archegos earlier this week, a person familiar with the matter said.

Startup lender Greensill Capital had borrowed from the bank and helped manage about $10 billion of debt funds for Credit Suisse asset management clients that the Swiss firm had marketed as among its safest products. Now the funds are frozen and being wound down after Lex Greensill’s firm collapsed amid doubts about its lending practices.

Credit Suisse said it will provide an update on the funds in the “next few days."

Gottstein took over in February 2020 in the wake of a spying scandal that took down his predecessor and pledged a clean slate for 2021 after legacy issues marred his first year. Instead, he’s been overwhelmed by repeated lapses in oversight.

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