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Credit Suisse takes $4.7 billion hit from Archegos hedge fund scandal

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A Swiss flag flies over a Credit Suisse sign in Bern, Switzerland

FABRIC COFFRINI | AFP | Getty Images

Credit Suisse announced several senior executives leaving Tuesday and proposed cutting its dividend as it weighs the heavy losses from the Archegos Capital saga.

The Swiss lender now expects a pre-tax loss of around 900 million francs (960.4 million US dollars) for the first quarter after taking on a burden of 4.4 billion francs as a result of the scandal.

“The significant loss in our Prime Services business due to the failure of a US-based hedge fund is unacceptable,” CEO Thomas Gottstein said in a trading update.

Brian Chin, CEO of the Investment Bank, and Lara Warner, Chief Risk and Compliance Officer, will be stepping down from their roles with immediate effect, the bank said.

Last week, Credit Suisse announced that it was expecting heavy losses following the collapse of US hedge fund Archegos Capital. The bank was forced to dump a sizeable amount of shares in order to sever ties with the troubled family office.

The board has also waived its bonuses for the 2020 financial year, the bank announced on Tuesday. Chairman Urs Rohner gave up his “chairman’s fee” of 1.5 million francs.

At its Annual General Meeting on April 30, Credit Suisse, together with the amended compensation report, will propose a dividend of CHF 0.10 gross per share.

“In particular, following the major US hedge fund issue, the board of directors is changing its proposal to distribute dividends and withdrawing its proposals for variable compensation for the board of directors,” the Swiss lender said in a trade update.

The company has suspended its share buyback program and does not intend to resume buying shares until it has returned to its target capital ratios and restored its dividend.

Credit Suisse stocks were trading 0.1% below the flatline by mid-morning trading in Europe.

Another scandal

Last month, the bank announced a restructuring of its wealth management business and a suspension of bonuses to contain the damage from the collapse of UK supply chain finance firm Greensill Capital.

The Board has launched two separate inquiries into the Greensill and Archegos sagas, to be conducted by third parties, “to examine not only the direct problems that arise from each of them, but also the wider implications and lessons learned . ” “”

On May 1, Chin will be replaced at the head of the investment bank by Christian Meissner, currently Co-Head of the international wealth management investment banking advisory service at Credit Suisse and Deputy Chairman of Investment Banking.

Joachim Oechslin was appointed Interim Chief Risk Officer and Thomas Grotzer Interim Global Head of Compliance on Tuesday. All three will report to CEO Gottstein.

“Combined with the recent issues related to supply chain finance funds, I have found that these cases have caused significant concern to all of our stakeholders. Together with the Board of Directors, we are determined to address these situations,” Gottstein said in a statement .

“More victims”

Beat Wittmann, chairman and partner of Porta Advisors in Zurich, told CNBC on Tuesday that while the Credit Suisse case is not a systemic crisis, there could be “more casualties” if the root causes are not addressed in the banking sector.

“The danger is always that we only concentrate on changing people, but stick to the same business models and incentives and exploit the same loopholes,” said Wittmann.

“Worst of all, especially with European investment banks, they can only employ the US ‘B-League’ investment bankers, and of course the shareholders pay the price.”

Wittmann also argued that after the 2008 global financial crisis, European investment banks failed to adapt to protect themselves in the same way as their American counterparts.

“The European banks have just continued their universal banking model and if this is not really changed at the root cause of the problem, we will see more victims in Europe this year and much bigger casualties. And then at some point we will see one.” that will be systemic and of course regulators will act. “

He added that in the current environment of expansionary fiscal policies and loose monetary conditions, the risks of a systemic event increase as risk-weighted assets continue to inflate.

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Robert Dunfee