Credit Suisse forced to seek £1.3bn lifeline after taking a double whammy from Greensill collapse and implosion of hedge fund Archegos
Credit Suisse has been forced to go cap in hand to its shareholders for £1.3billion of emergency funding after suffering a double blow from the implosion of hedge fund Archegos and the collapse of Greensill Capital.
On a bleak day for the Swiss banking giant, it confessed to racking up losses of £594million in the first three months of the year.
Bosses said it had been on course for its best performance for a decade, before the dual disasters struck.
Plea for help: On a bleak day for the Swiss banking giant Credit Suisse, it confessed to racking up losses of £594m in the first three months of the year
But the Archegos scandal alone cost it £3.5billion, a hit that chief executive Thomas Gottstein described as ‘unacceptable’.
Shares ended the day down by 2 per cent. The investment bank has lost nearly a third of its market value since the beginning of March.
‘Credit Suisse’s reputation has suffered significant damage and the impact will become visible over the course of 2021 and the years to come,’ said Andreas Venditti, an analyst at Zurich’s Vontobel bank.
The mounting crisis will be a headache for Lloyds chief executive Antonio Horta-Osorio who is due to take over as chairman next week.
Fallout from the scandals at Greensill and Archegos have led to a clearout of top executives and a series of internal investigations.
Switzerland’s financial regulator Finma has also launched a probe into the bank over the Archegos affair. That is on top of the watchdog’s probe into the bank’s involvement with Greensill Capital, which is already under way.
Archegos, which invested the family money of financier Bill Hwang, had taken bets on shares with borrowed money.
Credit Suisse was one of the most heavily exposed – leaving it nursing huge losses. Gottstein, 57, said the Archegos loss ‘came as a big surprise’ adding that he ‘hoped and thought’ it was an isolated incident.
Even so, he revealed that Credit Suisse would be cutting back its prime brokerage arm, the unit involved in the affair.
The Archegos headache came just weeks after the bank’s asset management division was rocked by Greensill’s downfall.
Departing Lloyds chief faces uphill battle at Swiss bank
Antonio Horta-Osorio is set to join Credit Suisse as chairman next week as the investment bank battles through one of the toughest periods in its history.
The Lloyds Bank chief executive, who will give up his role at the British lender at the end of the month before immediately joining Credit Suisse, will be tasked with getting the bank back on the straight and narrow following a series of scandals.
Lloyds Bank chief exec Antonio Horta-Osorio will give up his role at the British lender at the end of the month before immediately joining Credit Suisse
Credit Suisse is dealing with the fall-out from the collapse of Greensill Capital, the blow up of hedge fund Archegos Capital Management and a spying scandal which sent shock waves through the usually staid world of Swiss private banking.
All three events have raised questions over Credit Suisse’s management and risk controls, and could leave chief executive Thomas Gottstein – who has been in his role for just over a year – fighting for his job.
Already Credit Suisse has ousted its chief risk officer, Lara Warner, and its investment banking chief, Brian Chin, in the aftermath of the Archegos and Greensill disasters.
It will be up to Horta-Osorio to decide Gottstein’s future. Horta-Osorio has dealt with banks in crisis before – when he joined Lloyds, the lender had been beaten down by the financial crisis and was reeling from its disastrous takeover of HBOS.
The 57-year-old was respected by colleagues who said that he made it his job to know ev
Greensill packaged up various supply chain loans and sold them to funds run by Credit Suisse. But Greensill went bust at the start of March, and borrowers including Sanjeev Gupta’s steel businesses are now unable or unwilling to pay their debts.
This is expected to cause a lengthy legal battle as investors, including Credit Suisse, attempt to get their money back.
The bank has currently returned about half of what was owed from its $10billion funds to clients, some of whom have already embarked on a possible lawsuit.
US legal firm Boies Schiller Flexner held its first meeting this week with investors burnt by the affair to discuss how to proceed.
Credit Suisse had also extended a separate £100million loan to Greensill. It is now predicting that £22million of this will not be repaid.
Analysts at JP Morgan said that even though the £1.3billion fund-raising would help to put the bank in a healthier position, ‘we still see questions remaining in terms of strategy and risk management’.
They added: ‘We think there may be further risk from Greensill litigation costs as well as potential regulatory fines for Archegos risk management.’
As it announced its probes into Credit Suisse, regulator Finma said that it had ‘ordered various short-term measures to be put in place’ at the beleaguered bank.
These included measures to reduce risk and docking pay in some departments.
Wages and bonuses at the bank were down by £86million compared with the same time last year.