Credit Suisse grabbed headlines again Tuesday, as the bank is poised to take a $4.7 billion hit on the Archegos debacle. That was higher than initial estimates, although by the time the bank made it official, speculation had reached $5 billion, so it wasn’t really a “surprise.”
“While our financial results are still subject to detailed finalization and review, we would expect to report a pre-tax loss for Q1 2021 of approximately CHF 900 million,” the bank said, in a statement, adding that the Archegos loss “will negate the very strong performance that had otherwise been achieved by our investment banking businesses.”
A familiar trio of names fell as the bank continued to liquidate positions tied to Bill Hwang’s blow-up. Around 34 million, 14 million and 11 million shares of ViacomCBS, Vipshop and Farfetch were offered, respectively.
Credit Suisse swears it’s taking this seriously and will learn from it, just as the bank will learn from Greensill. “The significant loss in our Prime Services business relating to the failure of a US-based hedge fund is unacceptable,” Thomas Gottstein remarked, adding that,
In combination with the recent issues around the supply chain finance funds, I recognize that these cases have caused significant concern amongst all our stakeholders. Together with the Board of Directors, we are fully committed to addressing these situations. Credit Suisse remains a formidable institution with a rich history.
Some folks are now “history” at the “formidable institution.” As expected, Brian Chin, Investment Bank CEO, is stepping down from the Executive Board at the end of this month. Lara Warner, Chief Risk and Compliance Officer, is also stepping down, effective today. Both are departing the bank, which cut its dividend and suspended buybacks pending a return of capital strength to the targeted 12.5%.
Read more about Credit Suisse and Archegos: Questions, Collateral And Bullet Dodgers
The shares are attempting to rebound from one of the worst monthly declines in history. So far, they’re up more than 4% in April after plunging nearly 25% in March.
Generally speaking, analysts are cautious, even as some suggested that Tuesday’s announcements at least provide some clarity, and might thereby help support the shares in the near-term.
Obviously, the combined reputational damage from Archegos and Greensill is impossible to quantify and will only be known over the longer-term.
As ridiculous as this sounds, I try not to cast aspersions. Not because I think any of this is somehow less “bad” than it seems, but rather because I’m not one for normative statements. It is what it is. And trust me, there are countless land mines like these sitting on the books (or off the books, as it were) of the world’s largest financial institutions just waiting on somebody to step on them.
I find it somewhat disingenuous that various “experts” and pundits warn that more of these blow-ups are inevitable while simultaneously expressing varying degrees of outrage, incredulity and feigned astonishment at Credit Suisse’s plight.
There’s nothing surprising about any of this. Nothing. This is part of the game. You can be better or worse at playing it, but you can’t avoid it. Remember the “London Whale” fiasco and Jamie Dimon’s infamous “complete tempest in a teapot” remark? Yeah. Not even Dimon can navigate this minefield of a business without occasionally losing a toe.
When Gottstein on Tuesday said that “serious lessons will be learned,” he didn’t mean that Credit Suisse will never take any risk again. He meant that the bank will try to do a better job managing that risk in the future.
Later, Bloomberg reported that the bank “could” see additional losses from Archegos this quarter and “may let clients take losses” on Greensill.
But, otoh, Compliance departments keep on harassing normal business people to tick boxes… It feels weird, I tell you.
Compliance departments are always subordinate to revenue generation.
yeah. and it’s a constant tug-of-war. nobody in sales wants compliance interceding
As a retail investor I played around with regional and local banks during the great recession and had a system that made pretty good money until it didn’t but the one thing I learned is that there is no way a retail investor like myself can know the quality of a bank’s assets and these banks held a lot of crap. Other than a couple Canadian banks, I don’t mess with banks anymore no matter how good they look on the outside.