Credit Suisse Taps Investors for Cash After Archegos Loss Widens
April 22 2021 - 1:23AM
Dow Jones News
By Margot Patrick
Credit Suisse Group AG said it would issue new shares after
losses from Archegos Capital Management wiped out a strong first
quarter, highlighting the damage caused by the collapse of the
investment firm.
On Thursday, the bank said it placed notes that convert to stock
in six months to counter damage to its capital position from the
loss and new charges imposed by the Swiss financial regulator. It
said it had only a small remaining exposure to Archegos as of
Wednesday after selling 97% of its related positions, but lost
another $655 million from them in the second quarter, adding to a
$4.7 billion charge in the first quarter.
On Thursday, Switzerland's financial regulator, Finma, said it
opened enforcement proceedings against the bank over how it handled
the risks around Archegos.
Revenue at Switzerland's second-largest bank by assets after UBS
Group AG rose 31% to about $8.3 billion from client activity in
surging markets. Its loss for the quarter was 252 million Swiss
francs, or about $275 million.
Revenue at Credit Suisse's investment bank was up 80%, buoyed by
corporate deal making and selling stock and bonds. Credit Suisse
said its wealth management businesses, which doesn't report as a
single division, brought in about $4.23 billion in revenue, up 3%
from a year earlier.
Credit Suisse has been the hardest hit of the lenders to
Archegos, a U.S. family investment firm that took huge bets on a
few stocks with borrowed money. Other banks lost money as well when
Archegos couldn't meet margin calls, but they were able to exit
positions more quickly. The fund's problems came just weeks after
Credit Suisse warned losses could be material from the collapse of
another bank client, Greensill Capital, with which Credit Suisse
ran a $10 billion set of investment funds.
Finma also said it opened enforcement proceedings into the
Greensill funds.
The double blow of Archegos and Greensill represents the bank's
biggest test in years and comes at a time of a leadership
transition. Thomas Gottstein took over a year ago after his
predecessor, Tidjane Thiam, was forced out after the bank was
caught spying on a recently departed executive.
The bank's longtime chairman, Urs Rohner, will retire after an
annual shareholder meeting next week. He will be replaced with an
outsider, Lloyds Banking Group PLC Chief Executive António
Horta-Osório.
On Thursday, Mr. Gottstein said the Archegos loss was
unacceptable. The bank cut its dividend and pushed out its heads of
risk, investment banking and equities. Its board and regulators are
looking into what went wrong.
Credit Suisse said it is strengthening risk controls in the
prime brokerage unit that serviced Archegos, adding that it expects
to reduce the size of its business serving hedge funds.
Credit Suisse stock has sunk 29% since the end of February
because of its problems and a weakening capital position. It said a
main measure of resilience, its common equity Tier 1 capital ratio,
slipped to 12.2% from 12.9% at the end of December. On Thursday, it
said it is placing about 203 million new shares with investors
through convertible notes to lift the ratio back toward 13%.
Write to Margot Patrick at margot.patrick@wsj.com
(END) Dow Jones Newswires
April 22, 2021 02:08 ET (06:08 GMT)
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