Credit Suisse Axes Management After $4.7 Billion Archegos Loss
Switzerland’s second largest bank will take a significant financial hit from the collapse of both Archegos and Greensill Capital.
Credit Suisse will overhaul the leadership of its investment bank and risk division following the collapse of hedge fund Archegos Capital, which the firm estimates will cost it $4.7 billion.
In a statement on Tuesday, the firm said it would take a hit of 4.4 billion Swiss francs from “the failure by a US-based hedge fund to meet its margin commitments”. The hit will likely undo “the very strong performance that had otherwise been achieved” and set the lender on course for a 900-million-franc loss in the first half of 2021.
Credit Suisse was one of several lenders acting as prime broker for family office Archegos Capital, run by controversial former hedge fund manager Bill Hwang. The firm collapsed last month after several large leveraged bets failed to pay off.
Credit Suisse dumped $2 billion worth of stock to end its exposure to Archegos. It also announced that Chief Risk Officer Lara Warner and investment banking head Brian Chin would step down follow the losses.
In addition to the hit taken from Archegos, Credit Suisse has also been caught up in the implosion of Greensill Capital, a major supply chain finance firm that also collapsed last month. Credit Suisse ran funds worth a total of $10 billion that invested in debt instruments generated by Greensill Capital. The funds were suspended after Greensill’s collapse.
The firm has yet to calculate the cost of its involvement with Greensill Capital.
“The significant loss in our Prime Services business relating to the failure of a US-based hedge fund is unacceptable,” Credit Suisse CEO Thomas Gottstein said in a statement. "In combination with the recent issues around the supply chain finance funds, I recognise that these cases have caused significant concern amongst all our stakeholders."
However, Gottstein expressed optimism for the future of the company. “Serious lessons will be learned. Credit Suisse remains a formidable institution with a rich history,” he said.