Credit score Suisse strikes to boosts capital forward of an additional Archegos hit By Reuters
© Reuters. FILE PHOTO: The logo of the Swiss bank Credit Suisse can be seen in a branch in Zurich
By Brenna Hughes Neghaiwi
ZURICH (Reuters) – Credit Suisse will raise over $ 2 billion to bolster its capital base after reporting another blow following the collapse of U.S. mutual fund Archegos and Swiss regulators cracking down on the bank over the multi-billion dollar debacle are.
The deaths of Archegos and another major customer, British finance firm Greensill, sparked losses, layoffs and bonus cuts at Swiss credit (SIX 🙂 at a time when rivals benefit from bumpers that benefit from trading and dealmaking. The prime brokerage unit that funded Archegos’ stock betting is shrinking.
After exiting most of the Archegos-related positions, Credit Suisse expects a profit of around CHF 600 million (US $ 655.81 million) in the April to June quarter. A 4.4 billion hit in January and March canceled an outstanding trading period and resulted in a slightly smaller pre-tax loss of CHF 757 million.
The stock price fell 3.6% to 0750 GMT. Analysts pointed to the continued success and dilution of Archegos caused by the 203 million-share convertible bond issue announced on Thursday.
“The loss we are reporting this quarter due to (Archegos) matters is unacceptable,” said CEO Thomas Gottstein, adding the placement of the bonds. “This will further strengthen our balance sheet and enable us to support the momentum in our core business.”
Credit Suisse emerged as the bank hardest hit by its exposure to Archegos, collapsing when it failed to meet margin calls.
On Thursday, the Swiss Financial Market Authority announced that it had initiated two enforcement proceedings against the bank in connection with Archegos and Greensill and that it would commission a third party to investigate possible deficiencies in risk management.
It said it had ordered several short-term measures to reduce the bank’s risk and requested a suspension of some bonus payments.
The new issue of Credit Suisse bonds will increase the bank’s core capital from 12.2% to around 13%. The CFO said he had recommended the bank to operate at a higher level than before “for the foreseeable future”.
US competitors, some of whom were exiting trading positions more quickly after the Archegos collapse, posted above-average earnings for the first quarter. Net income at Goldman Sachs Group Inc (NYSE 🙂 rose almost six times. Morgan Stanley (NYSE 🙂 announced a loss of nearly $ 1 billion from Archegos, but reported a 150% jump in profits.
After subtracting the result of Archegos and other important items in the first quarter of 4.4 billion Swiss francs, Credit Suisse would have achieved a profit before tax of 3.6 billion Swiss francs, which is the best quarter in operational terms for at least a decade.
Given the strong business environment, Credit Suisse’s Asia-Pacific region posted a 154% year-over-year increase and a 25% increase in pre-tax profits in its Swiss business – the only two businesses that were distinguished from the recent Archegos and Greensill episodes.
While Gottstein was grappling with limiting the reputational damage of the bank and the loyalty of customers and employees, there were still more extensive strategic initiatives until the current shareholders, as widely expected, the CEO of the Lloyds Banking Group (LON 🙂 PLC, Antonio Horta- Osorio, elect the next chairman of Credit Suisse on April 30th.
Analysts believe the problems that hit the bank’s capital reserves will impact earnings in the coming quarters, as lower capital reserves can reduce risk appetite and affect relationships between employees and customers.
The bank announced on Thursday that it had reduced its remuneration and service costs by 5% compared to the previous year or, after adjustment, by 109 million francs. This corresponded to a fraction of a massive decrease in the bonus accruals previously reported by the media.
“In terms of retention (and compensation), we need to balance it out. If we had decided to increase the provision for compensation this quarter after the bank made a loss, I don’t think it would for shareholders would be really acceptable. ” In all honesty, “CFO David Mathers told Reuters.
“That is understood by everyone at the bank. But it is clear that the rest of the year is still to play and we will see how the performance evolves and grows accordingly,” he said.
Investment banking posted a pre-tax loss of $ 2.6 billion as a result of a 29% jump in sales and trading in fixed income, a jump of 23% in sales and trading proceeds of stocks, and much larger profits The capital markets and in advice could not offset the great success of Archegos that the device recorded.
The asset management unit, which managed Greensill-related assets of $ 10 billion, saw profits decline 30% as an increase in assets under management couldn’t prevent “significant items” from detracting from sales.
The unit, which is currently being refurbished, was already a problem in the fourth quarter when a stake in another US mutual fund suffered a $ half billion depreciation.
In April, the company announced it had identified $ 2.3 billion in loans exposed to financial and contentious uncertainties in its Greensill-affiliated supply chain finance fund.
Data from researcher Morningstar estimated that asset flows into Credit Suisse’s Europe-based fund offering declined in March, the month in which the suspension of Greensill-linked funds was announced.
The total net worth and market share of actively managed funds also decreased, according to Morningstar estimates. This compared to an increase in the broader European market.
($ 1 = 0.9149 Swiss Francs)