Credit Suisse Sees Loss In Q1 On Hefty Archegos Charge; Executives To Step Down

Swiss lender Credit Suisse Tuesday said it expects to report a pre-tax loss in its first quarter, hurt by a hefty 4.4 billion francs charge following the collapse of US-based hedge fund Archegos Capital Management.

Related to the issues, the company said Investment Bank Chief Executive Officer Brian Chin will step down from his role on the Executive Board, effective April 30. Further, Lara Warner, Chief Risk and Compliance Officer, will step down, effective April 6.

Credit Suisse has appointed Christian Meissner as Investment Bank CEO and member of the Executive Board, effective on May 1. Joachim Oechslin is appointed ad interim Chief Risk Officer and member of the Executive Board on an ad-interim basis, effective April 6. Thomas Grotzer is appointed ad interim Global Head of Compliance, effective April 6.

On March 26, Archegos defaulted on margin calls from several global investment banks, including Credit Suisse, Nomura Holdings Goldman Sachs and Morgan Stanley. This prompted banks to sell more than $20 billion worth of holdings. On March 29, Credit Suisse had warned about significant losses in connection with positions linked to Archegos.

Credit Suisse now acknowledged that matters related to both the US hedge fund and the Credit Suisse Asset Management managed supply chain finance funds require substantial further review and scrutiny. It has launched investigations into both of the matters which will focus on the direct issues arising from each of them as well as on the broader consequences.

Thomas Gottstein, CEO of Credit Suisse, said, “The significant loss in our Prime Services business relating to the failure of a US-based hedge fund is unacceptable. In combination with the recent issues around the supply chain finance funds, I recognize that these cases have caused significant concern amongst all our stakeholders.”

Regarding the four supply chain finance funds, where there are continued cash inflows, the bank will distribute a separate update on further repayments within the next few days.

For the first quarter, Credit Suisse projects pre-tax loss of about 900 million Swiss francs, while last year’s pre-tax income was 1.2 billion francs.

According to the company, the expected loss “will negate the very strong performance that had otherwise been achieved by our investment banking businesses and the increase in the year-on-year profits in all three of our wealth management businesses, as well as in asset management, with particular strength in our Asia Pacific division.”

Net new assets were positive during the quarter across three wealth management businesses as well as in asset management and in the Swiss corporate and institutional business.

For the first quarter, the company currently expects the CET1 ratio to be at least 12%, Tier 1 leverage ratio to be at least 5.4%, and CET1 leverage ratio to be at least 3.7%.

Credit Suisse plans to publish its first-quarter financial results on April 22.

Following the significant US-based hedge fund matter, the Board of Directors is also amending its proposal on the distribution of dividends and withdrawing its proposals on variable compensation of the Executive Board.

The Board now proposes to distribute a reduced ordinary total dividend of 0.10 franc gross per registered share, half from retained earnings and half out of the capital contribution reserves.

In Switzerland, Credit Suisse shares were trading at 10.25 francs, up 0.9 percent.

In pre-market activity on the NYSE, the shares were gaining around 1.1 percent to trade at $10.99.

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