By Brenna Hughes Neghaiwi
ZURICH (Reuters) – Credit Suisse will raise over $2 billion to strengthen its capital base after flagging a further hit from the collapse of U.S. investment fund Archegos and a shrinking of the prime brokerage unit responsible for the multi-billion dollar debacle.
The demise of Archegos and another major client, British finance firm Greensill, have plunged Credit Suisse into crisis, triggering losses, sackings and bonus cuts at a time when rivals are revelling in bumper profit from trading and dealmaking.
In a further blow for Chief Executive Thomas Gottstein, Switzerland’s financial regulator has opened enforcement proceedings against the bank over how it handled the risks around Archegos and Greensill.
Credit Suisse said it expects a hit of about 600 million Swiss francs ($655.81 million) for the April-June quarter after exiting most of its Archegos-related positions. A 4.4 billion hit in January-March wiped out what would have been a stellar trading period, leaving it with a slightly smaller-than-flagged pre-tax loss of 757 million francs.
Its shares fell 5.7%, with analysts pointing to the further Archegos hit and dilution caused by the issuance announced on Thursday of bonds convertible into 203 million shares.
Credit Suisse was the bank hardest-hit from exposure to Archegos, a U.S. based family office which collapsed when it could not meet margin calls on its heavily leveraged stock bets.
In response, the bank is cutting its prime brokerage business, which caters to hedge fund clients, by about a third.
Credit Suisse’s shares are down over 20% so far this year and the scandals have wiped out the 50% gain its stock had clocked up since November 2020, when optimism around vaccines and a new U.S. administration buoyed European financials.
For a graphic on Credit Suisse:
“The loss we report this quarter, because of (the Archegos) matter, is unacceptable,” Gottstein said.
The Archegos blowup came weeks after Credit Suisse had to suspend investment funds linked to Greensill, creating a double whammy for Gottstein whose appointment at the end of 2019 was meant to signal a new era of calm after a spying scandal felled his predecessor Tidjane Thiam.
Switzeland’s financial regulator, which is still investigating the spying controversy, said it had ordered several short-term measures to reduce the bank’s risk exposure and had requested a suspension of some bonus payments.
Credit Suisse’s new bond issuance will boost the bank’s core capital level to around 13% from 12.2%, a level its chief financial officer said he had recommended the bank operate at “for the foreseeable future” and higher than its previous guidance.
U.S. rivals, 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…