Credit Suisse has revealed it expects a huge loss in Q1 of 2021. The Zurich-based lender was one of the highest hit firms following the Archegos Capital fund saga. It has since proposed a cut to its dividend and seen several executives depart.
Archegos Capital Fund has been the centre of attention for the last couple of days. The family office of former Tiger Asia manager Bill Hwang has seen several banks take huge losses. Chief among is Credit Suisse which was a prime broker of the family office. Amid the Archegos Capital scandal, Credit Suisse was reportedly selling blocks of shares linked to the liquidation of Archeos ViacomCBS, Vipshop and Farfetch which were valued at roughly $2.4 billion.
The firm has confirmed it expects a Q1 pre-tax loss of around $960.4 million. CEO Thomas Gottstein, stating that this is unacceptable, has further confirmed that the same has resulted in the departure of investment Bank CEO Brian Chin and Lara Warner, Chief Risk and Compliance Officer. He said:
“The significant loss in our Prime Services business relating to the failure of a U.S.-based hedge fund is unacceptable.”
It will further halt buybacks of shares until it regains increase its capital. The bank has also proposed a cut to its dividend as a measure to curb the losses. On its upcoming AGM scheduled for April 30th, the board is set to propose a two-third cut to dividends, pushing it to 0.10 Swiss francs. Chairman Urs Rohner is also expected to forfeit 1.5 million Swiss francs.
Credit Suisse amid Archegos Capital Saga
On top of the Archegos scandal, Credit Suisse was already facing yet another scandal. The collapse of British supply chain finance firm Greensill Capital led the bank to last month halt senior executives’ bonuses and reshuffle its asset management division. The Financial Times reported that departing Lara Warner signed off a $160 million bridging loan to Greensill overruling risk managers. The company has since filed for insolvency.
“In combination with the recent issues around the supply chain finance funds, I recognise that these cases have caused significant concern amongst all our stakeholders,” said Thomas Gottstein.
Brian Chin is set to be replaced by Christian Meissner who currently serves as the vice-chairman of investment banking. Lara Warner on the other hand will be replaced by Joachim Oechslin and Thomas Grotzer currently interim global head of compliance. The change in executives seeks to root out what has been a concern in the risk management process.
Following the Archegos scandal, Bank of America has since downgraded its stock to neutral. It further cut its 2021 profit and buyback forecasts by $533 million. One analyst from BoA noted that the latest saga makes it one too many for the company.