Credit Suisse rocked in fund meltdown: Bank sees £3.2bn wiped off its value in one day as new boss Antonio Horta-Osorio faces multiple crises
Credit Suisse has been thrown into crisis just weeks before Antonio Horta-Osorio joins as chairman from Lloyds Bank.
The Swiss investment bank was already reeling from the aftermath of a spying scandal and its exposure to bust lender Greensill Capital.
But now it has revealed it will suffer a ‘highly significant’ hit to its profits after another client, hedge fund Archegos Capital Management, hit the rocks.
Crisis: Credit Suisse’s new chairman Antonio Horta-Osorio (pictured). The investment bank’s value has fallen by £4.9bn since the start of March
The admission wiped £3.2billion off Credit Suisse’s market value in just one day, as shares fell 13.8 per cent.
Since the stock reached its 2021 peak at the beginning of March, its value has been slashed by £4.9billion.
Horta-Osorio, 57, who has made £60million during his decade at Lloyds, will have a job on his hands as he tries to rebuild Credit Suisse’s fortunes and get the bank back out of the spotlight.
Credit Suisse was one of several prime brokers to Archegos, a hedge fund which invested the wealth of financier Bill Hwang and his family.
Nomura warns of profit hit
Nomura has been left licking its wounds after the Archegos crisis.
The Japanese bank, which trained infamous private equity veteran Guy Hands in the 1990s, was another of the prime brokers caught on the hop by Bill Hwang’s fund.
The bank had lent to Archegos to allow the fund to increase its stake in Viacom. But unlike brokers at Goldman Sachs and Morgan Stanley, Nomura was not ahead of the curve when it came to reducing its exposure to Hwang.
The lender grudgingly warned that its entire profits for the six months to March could be wiped out by the Archegos implosion.
Nomura said its estimated claim against Archegos, which it did not mention by name, was around £1.5billion. Shares, which are listed in Tokyo, tumbled by 16 per cent – their biggest one-day fall, wiping £2.2billion off its value.
Eleanor Creagh, a market strategist at Saxo Bank, said the affair would prompt ‘heightened scrutiny around the disclosures’ which hedge funds have to make.
John Meyer, an analyst at UK broker SP Angel, said it may ‘lead to a tightening of lending controls in the prime brokerage and stock lending departments of the major banks’.
Prime brokers lend money to investment firms such as Archegos, allowing them to buy bigger stakes than they could otherwise afford.
This means investors can make bigger returns if their bets are correct – but stand to make painful losses if they are proved wrong, and then have to pay back the loan.
Hwang had placed a big bet on Viacom, the owner of Channel 5 – but it didn’t pay off, as other investors worried that it wouldn’t be able to compete against rivals such as Netflix and Disney Plus.
Prime brokers who worked with Archegos started getting twitchy, and asked the fund to stump up more money to give them more security. But Hwang was left with a problem – he didn’t have enough cash to hand.
In the brokers’ eyes, this meant he was defaulting on the loans they had given him.
They began to sell the shares in Viacom which they held for him, causing their value to tumble further.
Goldman Sachs, Morgan Stanley and UBS – some of the firms which worked as prime brokers for Archego – were quick off the mark and sold the stock to recover the amount they were owed by Hwang.
A source close to Goldman said the impact of Archegos’ crisis on its balance sheet was ‘immaterial’. But Credit Suisse, and Japanese bank Nomura, were slower to sell their positions in Viacom.
Sources close to the Swiss banking titan estimated that its relationship with Hwang could cost £2billion to £3billion in the first quarter of this year.
City insiders said the bank will have questions to answer to its shareholders – and to Horta-Osorio when he begins in April.
One said: ‘It’s not really a question of why firms like Goldman were quick to sell – they should have seen this coming. It’s more a question of why Credit Suisse and Nomura were so slow.’
Another senior City source said: ‘I would love to be a fly on the wall when Antonio has his first conversation with Credit Suisse’s risk department.’
The lender was only just recovering from a spying scandal, which blew apart the staid world of Swiss banking when it emerged in 2019.
A report found that senior individuals within Credit Suisse had put former employees under surveillance, due to paranoia that they would poach top staff.
The affair saw chief executive Tidjane Thiam ousted a year ago, even though an internal investigation found no involvement on his part.
Chairman Urs Rohner, who was caught in a media storm over allegations that his lavish 60th birthday party included a ‘racist’ performance, also agreed to leave this year.
But new boss Thomas Gottstein has so far failed to dodge the skeletons lurking in Credit Suisse’s cupboards.
Just this month, the bank was forced to suspend £7.3billion of funds which invested clients’ money in Greensill loans, after Greensill’s insurer failed to renew its cover.
The firm collapsed into administration, and questions are emerging around whether the assets which Credit Suisse invested in were what investors expected.
Separately Credit Suisse had lent Greensill £100million – which it has admitted it is unlikely to recover.
Tiger cub’s claws could put the world on brink
What is archegos?
Archegos is a family office started by former hedge fund manager Bill Hwang. Such funds manage just one (very rich) family’s money.
What is a prime broker?
Prime brokers are investment banks that offer services to investors, other banks or hedge funds.
They have branched out into complex instruments like contracts for difference (CFDs), which allow clients to bet on share price movements.
Archegos was taking big bets on Viacom stock, which it hoped would keep rising after an excellent year.
To do this Archegos took out CFDs, essentially placing bets without actually owning the shares.
But Viacom’s shares fell sharply last week. Archegos’ prime brokers, including Goldman Sachs, saw the family office was dangerously overleveraged and issued a margin call on Friday.
What is a margin call?
Margin calls are when banks ask their clients to stump up more money to cover potential losses.
They are conisdered so hairy a film called Margin Call, starring Kevin Spacey and Jeremy Irons, was made shortly after the financial crisis.
Archegos was hit by a string of margin calls including from Goldman, Morgan Stanley, UBS, Credit Suisse and Nomura – but couldn’t pay.
Then what happened?
Archegos started to sell assets in order to raise money but it wasn’t enough. Its prime brokers were also dumping stocks exposed to Archegos – sending shares down even further.
There are deep fears that other family offices could have similar exposure to the global stock market and that the world could be on course for another financial crisis.
Who is Bill Hwang?
Hwang has had a chequered past and, as recently as 2018, Goldman Sachs had him on a blacklist. In 2012 he settled a case with the US regulator for insider trading.
He is a so-called Tiger Cub, having made his name working at Tiger Management, the hedge fund run by Julian Robertson.
After a short stint running his own hedge fund, he decided to manage his own money.