Credit Suisse overhauls executive board as it estimates Archegos fallout at €3.9bn

Swiss bank cuts proposed dividend and suspends share buyback programme

Credit Suisse on Tuesday announced an estimated loss of 4.4 billion Swiss francs (€3.97bn) from its relationship with Archegos Capital Management, suspended a share buyback programme and cut its proposed dividend.

The Swiss bank, which has dumped over $2 billion worth of stock to end exposure to the troubled investor, also said its chief risk officer Lara Warner and Brian Chin, the bank's investment banking head, were stepping down.

It said Christian Meissner would be appointed chief of the investment bank as of May 1st, Joachim Oechslin would be interim chief risk officer, and Thomas Grotzer would be interim global head of compliance.

"The significant loss in our prime services business relating to the failure of a US-based hedge fund is unacceptable," Credit Suisse chief executive Thomas Gottstein said in a statement. "Serious lessons will be learned. Credit Suisse remains a formidable institution with a rich history."


Ms Warner and Mr Chin are paying the price for a year in which Credit Suisse's risk-management protocols have come under harsh scrutiny, with two major relationships turning sour in quick succession, saddling the bank with losses that JPMorgan Chase & Co analysts estimate could add up to $7.5 billion.

Archegos, a private investment vehicle of former hedge fund manager Sung Kook “Bill” Hwang, fell apart late last month when its debt-laden bets on stocks of certain media companies unravelled. Credit Suisse and other banks, which acted as Archegos’ brokers, had to scramble to sell the shares they held as collateral and unwind the trades.

For Credit Suisse the Archegos episode came just weeks after the demise of another major client – the British finance firm Greensill. Credit Suisse had marketed funds that financed Greensill's operations. Ms Warner's role has come under scrutiny in the aftermath of that firm's collapse as well.

"Obviously heads are rolling. After any sort of blow up there's always tighter control," said Jason Teh, chief investment officer at Vertium Asset Management in Sydney.

Credit Suisse had lost a lot of money and its share price will struggle to rally, Mr Teh said. “In the short term, even if all that is declared, [the stock] is not going to go up because you still have to grow earnings. Basically they’ve lost earnings and they won’t get it back until they find another way to get it.”

Credit Suisse’s share price has fallen by a quarter in the past month as investors assess the hit to the bank’s bottom line and credibility, overshadowing an otherwise strong start to the year.

The episodes have also put pressure on chief executive Thomas Gottstein who has been trying to move Credit Suisse on from another string of bad headlines, spanning a spy scandal that ousted predecessor Tidjane Thiam to a $450 million write-down on a hedge fund investment.

Unwinding trades

Hwang, a former Tiger Asia manager, ran into trouble following a March 24th stock sale by media company ViacomCBS. Archegos was heavily exposed to ViacomCBS, sources said, and the slide in stock set off alarm bells at its banks, which called on the fund for more collateral.

When the firm could not meet the demand, the banks started selling the collateral, which included shares of Baidu and Tencent Music Entertainment Group, among others.

While some banks were able to offload their collateral earlier, Credit Suisse still had shares left. On Monday it offered 34 million shares of ViacomCBS priced between $41 to $42.75; 14 million American depository receipts of Vipshop Holdings Ltd between $28.50 and $29.50; and 11 million shares of Farfetch Ltd, priced between $47.50 and $49.25 in secondary offerings, a source familiar with the situation said.

The shares were the remaining holdings tied to Archegos that Credit Suisse needed to sell before tallying up losses, the source said.

ViacomCBS shares, which traded at a record of $101.97 in March, closed down 3.9 per cent at $42.90 in regular trading.

Vipshop was down 1.19 per cent at $29.78, while Farfetch shares fell nearly 6.1 per cent to $49.69. – Reuters