The Situation, The Matter And Reputation Repairmen

“[Our] underlying business results were offset by the significant charge in respect of the US-based hedge fund matter in Q1,” Credit Suisse said Thursday, in the course of announcing earnings and, notably, a $2 billion capital raise.

As tipped weeks ago, the Archegos implosion cost the bank CHF4.4 billion. Including that hit, Credit Suisse’s Q1 pre-tax loss was CHF757 million. Thomas Gottstein again called Archegos “unacceptable,” and reiterated the ongoing “steps” the bank is taking “to address the situation as well as the supply chain finance funds matter.”

Investors won’t so quickly forget about Archegos (the “situation”) and Greensill (the “matter”). The shares took another hit Thursday, falling more than 6%. The bank said it managed to shed nearly all of its exposure to Archegos, but expects to take a related CHF600 million loss in Q2. The bank called it “a residual impact.”

As you can see (figure above), the shares are experiencing a “residual impact” of their own, having fallen to levels last seen in late October.

“Including the benefit of the… capital raise as well as other proactive capital actions, we intend to achieve a CET1 ratio of approximately 13% and a minimum 4% CET1 leverage ratio,” Gottstein remarked.

Not that anyone cared Thursday, but FICC revenue was up 29% YoY, while equities jumped 23%. Unfortunately (for Credit Suisse) everything the bank says will be viewed in the context of recent boondoggles. So, statements touting “the strength of our strategy as we continue to drive collaboration across divisions and business areas,” for example, are met with derisive chuckles.

The bank is cutting prime brokerage leverage by a third.

Buybacks were, of course, suspended and the dividend cut.

Read more: A ‘Formidable Institution’

The results came a day after Bloomberg reported that the bank’s point salesman for Archegos ended up “overseeing risk-taking in the broader prime-brokerage unit.” Although he hasn’t been charged with any wrongdoing, the optics left something to be desired, to put it mildly.

There was no definitive word on Greensill. It’s too early to speculate on recoveries and whether the bank will be saddled with losses.

Bottom line: Credit Suisse is attempting to tackle the capital question first, and will now embark on what one imagines will be a long, arduous quest to repair its reputation.

I’m reminded of U-Turn, a largely forgotten 1997 film starring Sean Penn, an indebted gambler whose car breaks down on his way to Vegas. Billy Bob Thornton plays a local repairman.

At one point, an exasperated Penn loses his patience after Thornton’s character tells him he needs additional repairs.

“Didn’t you read the sign? Am I supposed to let you drive out of here with a bad gasket? Then you get in an accident and get killed, or worse. Who do they blame? Me. And there goes my reputation,” Thornton tells an incredulous Penn who, looking around at the hopelessly derelict junkyard, turns to the grease-covered Thornton and exclaims “What reputation?!”