Credit Suisse to cut dividend, overhaul senior management and book US$4.7 billion in first-quarter loss from Archegos fallout

Loss related to Archegos’ margin calls will hit Credit Suisse with a US$4.7 billion first-quarter charge, pushing the bank into a pre-tax loss of approximately US$960 million

The Swiss bank will cut its 2020 dividend and overhaul its senior management

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A Credit Suisse sign hangs outside its Manhattan office on March 29, 2021 in New York City. Photo: AFP

Published: 9:15pm, 6 Apr 2021Updated: 9:15pm, 6 Apr 2021

Credit Suisse said it expects to post a pre-tax loss in its firs-quarter results due on April 22, inclusive of a charge from Archegos Capital Management’s trading losses, becoming one of the largest casualties in the world’s biggest margin call.

The Zurich-based bank will book a charge of 4.4 billion Swiss francs (US$4.7 billion) in the first three months due to losses at a US hedge fund, Credit Suisse said without naming the fund. The charge will push Credit Suisse into a pre-tax loss of around 900 million francs (US$960 million) in the quarter, cancelling out the profit growth in its asset management unit helped particularly by its Asia Pacific division, the bank said in a trading update on Tuesday, adding that figures are still subject to finalisation and review.

“The significant loss in our Prime Services business relating to the failure of a US-based hedge fund is unacceptable,” the bank’s chief executive Thomas Gottstein said in a statement, adding that the case had caused “significant concerns” among stakeholders. “Together with the board of directors, we are fully committed to addressing these situations. Serious lessons will be learned.”

Archegos’ blowout came to light on March 28, when Goldman Sachs and Morgan Stanley were reported to be among the Wall Street banks and brokers that forced-sold leveraged positions taken by a hedge fund founded by former Tiger Asia trader Bill Hwang. The fund’s financial exposure was estimated at between US$10 billion and US$50 billion. Since the forced selling, Credit Suisse and Japan’s Nomura Holdings said they had incurred losses in connection to Archegos.

Bill Hwang, CEO and founder of Archegos Capital Management and Fuller trustee. SCMP Pictures (UNDATED HANDOUT)

The episode would scupper the strong growth seen in at Credit Suisse’s investment banking, wealth and asset management businesses combined. The bank’s Asia Pacific business had already been hit by sizeable losses in 2020 linked to entrepreneur Lu Zhengyao, whose Luckin Coffee was expelled from the Nasdaq market amid an accounting scandal. Credit Suisse was the lead underwriter for Luckin’s 2019 initial public offering.

The Swiss bank first revealed on March 29 that it was expecting “highly significant” loss in its first quarter as a result of trading losses tied to the highly-leveraged portfolio of Archegos.