Credit Suisse Reveals Q1 Losses, Expects Archegos Implosion to Spill Into Q2

UTC by John Kiguru · 3 min read
Credit Suisse Reveals Q1 Losses, Expects Archegos Implosion to Spill Into Q2
Photo: Depositphotos

Credit Suisse on Thursday confirmed the loss of $275 million in Q1 of 2021. The bank further warned it expects losses to spill into Q2 following the Archegos hedge fund saga. However, it has since exited 97% of its trading positions in the hedge fund.

Following the warning by Credit Suisse Group (NYSE: CS) of potential heavy losses in Q1 brought about by a series of high-risk investments, the bank has posted its net loss of Q1. One of them was the Archegos hedge fund which collapsed in a week sending shockwaves across major investment banks. Just weeks before, the Swiss bank had to incur another huge loss from British financial firm Greensill which had filed for bankruptcy. The Swiss bank has now confirmed that its losses of Q1 are to the tune of 252 million Swiss francs -$275 million.

This is further set to spill into the second quarter with a net loss of 600 million francs driven by the Archegos fund. In response, the Swiss lender has confirmed it has exited 97% of its positions in the fund. Additionally, the event was the breaking point for CEO Thomas Gottstein, to dismiss two executives- investment bank CEO Brian Chin and chief risk and compliance officer Lara Warner. Their actions had seen the bank take a $20 billion exposure in the US-based hedge fund, with executives only realising the exposure days to its collapse.

“The loss we had in Archegos was unacceptable and we had to take action in terms of management changes. We are reducing our exposure in this business, we are reviewing our risk, controls and systems in that area,” CEO Thomas Gottstein stated.

Archegos Wrecks Credit Suisse Record Q1 Performance

This implosion as the bank noted offset the good performance recorded by wealth management and investment banking. According to the report, the bank was expecting net revenue of 7.4 billion Swiss francs before the hedge fund saga, this would be a 34% increase from last year.

The CEO confirmed this would be a record performance adding that it would be “one of our best quarters in the history of Credit Suisse. Definitely the best quarter in the last 10 years”.

The losses in the Archegos collapse have further triggered investigations. Swiss regulates confirmed on Thursday they opened enforcement proceeding against the Swiss bank. FINMA is also looking to enforce the bank to employ risk-reducing measures to protect investors.

Analysts from the Bank of America (BoA) have warned that the Swiss bank business has been hit hard. According to them, the sagas are one too many. BoA has since slashed the bank’s 2021 buyback forecasts by $533 million.

CS stock reacted quite negatively to the news. In the pre-market, the stock is down 6.55%, trading at $9.70.

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