Credit Suisse estimates Archegos loss at $4.7bn, shakes up board

Credit Suisse Group AG on Tuesday announced an estimated loss of 4.4 billion Swiss francs ($4.7bn) from its relationship with Archegos Capital Management LP, suspended a share buyback programme and cut its proposed dividend.

The Swiss bank, which has dumped more than $2bn worth of stock to end its 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 1, 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.”

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

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 key client – British finance firm Greensill. Credit Suisse had marketed funds that financed Greensill’s operations. 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, 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 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 $450m loss on a hedge fund investment.

Unwinding trades

Hwang, a former Tiger Asia manager, ran into trouble following a March 24 stock sale by media company ViacomCBS Inc. Archegos was heavily exposed to the firm, sources told the Reuters news agency, and the slide in ViacomCBS’s stock price set off alarm bells at its banks, which called on the fund for more collateral, a move known as a margin call.

When Archegos could not meet the demand, the banks started selling the collateral, which included shares of Baidu Inc 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 each; 14 million American depository receipts of Vipshop Holdings Ltd between $28.50 and $29.50 each; and 11 million shares of Farfetch Ltd, priced between $47.50 and $49.25 each 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 percent at $42.90 in Monday trading in the US. Vipshop was down 1.19 percent at $29.78, while Farfetch shares fell nearly 6.1 percent to $49.69.