Swiss banking giant Credit Suisse could have lost as much as $5 billion, according to an FT report, after a fire sale of about $20 billion in U.S. and Chinese stocks by its client, Archegos Capital Management, which defaulted on margin calls and was forced to unwind assets.
Barely one-and-a-half years after pushing out its only Black CEO, Tidjane Thiam, in a scandal that reeked of racism, Credit Suisse has warned that the selloff could have a “highly significant and material” impact on its first-quarter results.
“A significant U.S.-based hedge fund defaulted on margin calls made last week by Credit Suisse and certain other banks. Following the failure of the fund to meet these margin commitments, Credit Suisse and a number of other banks are in the process of exiting these positions,” the Swiss bank said in a statement on March 29. That hedge fund was Archegos.
“While at this time it is premature to quantify the exact size of the loss resulting from this exit, it could be highly significant and material to our first-quarter results,” Credit Suisse said.
Earlier this month, the bank wound up funds with $10 billion linked to collapsed supply chain finance firm Greensill Capital. More than 1,000 trapped investors are preparing to take legal action, FT reported.
In February, Credit Suisse won the Risk Awards 2021 for developing a new analytics dash that helped the bank get ahead of operational risk breaches during the covid-19 crisis. Jim Barkley, head of non-financial risk at Credit Suisse, said the dash “allowed us to pull that together very quickly”.
Before he was pushed out, Thiam – a French-Ivorian banker – was credited with bringing “a revolution” to Credit Suisse by changing how the bank worked. In his five years at the helm, he helped to revive its image by cutting back and de-risking the investment bank while refocusing on the group’s powerful wealth management business, particularly in Asia.
“Coming so soon after the Greensill fiasco, you have to wonder about what this says about Credit Suisse risk management, if it can be saddled with such heavy losses from one fund,” said Neil Wilson, chief markets analyst at Markets.com, in a Financial News interview.
There are concerns that these might not be isolated cases and might trigger an overhaul of the company’s structure, including a spinoff of its asset management arm. Thomas Gottstein, who took over as Credit Suisse CEO in February 2020 year after Thiam left, alluded to that possibility.
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