Credit Suisse takes £3.4bn hit from hedge fund implosion

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Credit Suisse will take a 4.4bn franc (£3.4bn) writedown tied to the implosion of Archegos Capital Management and replace two top executives after a series of losses and scandals raised questions about its risk management.

The charge will result in a pre-tax loss of about 900m francs for the first quarter, the bank said on Tuesday. Credit Suisse scrapped bonuses for top executives, cut its dividend and suspended share buybacks to protect its capital. Investment bank head Brian Chin and chief risk officer Lara Warner are leaving.

Chief executive Thomas Gottstein vowed he would draw “serious lessons” after the Archegos loss and the collapse of Greensill Capital last month derailed his effort to move past a turbulent 2020. The firm is the worst-performing major bank stock in the world so far this year as a strong first two months for its investment bank business are being overshadowed by its exposure to the failed firms.

“I recognise that these cases have caused significant concern amongst all our stakeholders,” Mr Gottstein said. “Together with the board of directors, we are fully committed to addressing these situations. Serious lessons will be learned.”

Mr Chin and Ms Warner are the highest-ranking executives to leave over the twin hits. Mr Gottstein earlier removed Eric Varvel from his role running asset management after Greensill’s downfall. In a memo to staff on Monday, Credit Suisse also announced at least five other departures, including equities trading chief Paul Galietto.

Christian Meissner, the former Bank of America executive who joined Credit Suisse in October, will take over from Mr Chin next month. Joachim Oechslin will become risk chief in the interim, a role he held until 2019 when Ms Warner took over. Thomas Grotzer was named interim head of compliance.

The bank cut its dividend proposal for 2020 to 10 centimes a share, from about 29 centimes, and suspended its share buyback until its common equity Tier 1 ratio, a key measure of capital strength, returns to the targeted level. Credit Suisse said it expects a CET1 ratio of at least 12pc in the first quarter. It had aimed for at least 12.5pc in the first half of this year.

Chairman Urs Rohner offered to forgo his compensation for 2020 of 1.5m francs and bonuses for the executive board have been scrapped for that year.

The Zurich-based bank was one of several global investment banks to facilitate the leveraged bets of Archegos, the family office of former hedge fund manager Bill Hwang. But while many other firms that had prime brokerage relationships with Archegos unloaded their positions with minimal damage, Credit Suisse was caught with major losses. The Swiss bank sold $2.3bn worth of stocks tied to Archegos earlier this week, a person familiar with the matter said.

Startup lender Greensill Capital had borrowed from the bank and helped manage about $10bn of debt funds for Credit Suisse asset management clients that the Swiss firm had marketed as among its safest products. Now the funds are frozen and being wound down after Lex Greensill’s firm collapsed amid doubts about its lending practices.

Mr Gottstein took over in February 2020 in the wake of a spying scandal that took down his predecessor and pledged a clean slate for 2021 after legacy issues marred his first year. Instead, he has been overwhelmed by repeated lapses in oversight.