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By Brenna Hughes Neghaiwi
ZURICH, April 22 (Reuters) – Credit Suisse said on Thursday it will boost capital reserves after taking a multi-billion dollar hit from the collapse of U.S. investment fund Archegos, while regulators announced an enforcement case against the bank over the matter.
Switzerland’s second-biggest bank after UBS posted a slightly smaller-than-flagged 757 million Swiss franc ($825.97 million) first-quarter pre-tax loss, as the Archegos hit wiped out gains from a bumper trading quarter.
Stripping out the 4.4 billion franc hit and other significant items, the bank said pre-tax profit would have been 3.6 billion francs, which would have represented its best quarter operationally in at least a decade.
A net loss of 252 million francs compared with a mean estimate of 815 million francs in the bank’s own poll of 17 analysts.
Alongside announcing its earnings, the bank said it will issue mandatory convertible notes (MCN) convertible into 203 million shares, which should net the bank more than 1.8 billion Swiss francs. That would boost its core capital level to around 13% from 12.2%.
“The loss we report this quarter, because of (the U.S.-based investment fund) matter, is unacceptable,” Chief Executive Thomas Gottstein said in a statement. “We expect that our successful MCN placement today will further strengthen our balance sheet and enable us to support the momentum in our core franchise.”
Credit Suisse has emerged as the bank hardest-hit from exposure to Archegos, which collapsed when it could not meet margin calls.
Credit Suisse said it expects a residual impact of approximately 600 million francs from the matter in the second quarter of 2021. It had already exited 97% of related positions, it said.
That, plus the demise of another client, Greensill Capital, has triggered internal and external probes and the ousting of a swathe of executives.
On Thursday, the Swiss financial market supervisor said it had opened two enforcement proceedings against the bank related to both matters and would be appointing a third-party agent to investigate possible shortcomings in risk management.
The regulator said it had taken precautionary measures, including capital surcharges as well as reductions in or suspensions of variable remuneration components.
U.S. rivals, some of which were quicker to exit trading positions as Archegos collapsed, produced forecast-beating profit for the first quarter. Net income at Goldman Sachs Group Inc rose nearly six-fold. Morgan Stanley disclosed an almost $1 billion loss from Archegos yet still reported a 150% jump in profit.
Highlighting the strong environment, Credit Suisse posted bumper earnings in its Asia-Pacific unit, up 154% year-on-year, and a 25% pre-tax profit rise in its Swiss business – the only two divisions unscathed by the recent episodes with Archegos and Greensill.
Gottstein has been grappling with limiting the longer-term damage to the bank’s…