LONDON – Credit Suisse on Thursday reported a net loss of 252 million Swiss francs ($ 275 million) for the first quarter as the bank was under increasing pressure.
The loss reflected “a significant strain on the US-based hedge fund affair in Q1 21 (Q1) that offset positive performance in asset management and investment banking.”
It did after the Swiss lender warned of heavy losses earlier this month following a scandal involving Archegos Capital, a US-based hedge fund. which collapsed after taking too much risk. Credit Suisse then recorded a success of 4.4 billion Swiss francs, which “significantly influenced” the results of the first quarter on Thursday.
In addition, Brian Chin, CEO of the investment bank, and Lara Warner, Chief Risk and Compliance Officer, resigned. The board decided to forego bonuses for 2020 and cut the proposed dividend.
Credit Suisse said Thursday that adjusted net sales excluding material items would have reached CHF 7.4 billion excluding material items. This would have meant an increase of 35% compared to the previous year.
Aside from the Archegos scandal, the bank’s chief executive Thomas Gottstein told CNBC’s Geoff Cutmore on Thursday that this was “one of our best quarters in Credit Suisse history. Definitely the best quarter in 10 years.”
“The loss we had in Archegos was unacceptable and we had to take action regarding changes in management. We are reducing our exposure to this business, we are reviewing our risks, controls and systems in this area,” added Gottstein.
In March, Credit Suisse adjusted its asset management business and suspended bonuses following the collapse of Greensill Capital, a UK supply chain finance company.
In his interview with CNBC, Gottstein said he did not offer the board of directors his resignation following the Archegos and Greensill cases.
“Look, this is the time to act, to turn around, and to take the company to the next level. This is the time for solutions. We had a very difficult first quarter on these two incidents, but at the same time operating performance that you saw in the first quarter showed that our strategy was the right one and that we are on the right track, “said Gottstein.
When asked if the bank had taken too much risk, he said, “We have no problem with the risk culture.”
More losses ahead
Credit Suisse announced Thursday that it had left 97% of its trading positions related to the Archegos hedge fund and expects to post an additional loss of around CHF 600 million in the second quarter.
The Swiss Financial Market Authority announced on Thursday that it had initiated enforcement proceedings against Credit Suisse over its losses in connection with the Archegos collapse. The regulator also said it started legal proceedings against the bank over the Greensill case last month.
“In addition to the bank’s measures, FINMA has also called for various risk-reducing measures,” said a statement from the Swiss authority.
Other highlights in the Credit Suisse first quarter results:
- The CET 1 capital ratio, a measure of the solvency of banks, was 12.2% after 12.9% at the end of 2020.
- Net sales reached 7.6 billion Swiss francs after 5.2 billion Swiss francs in the fourth quarter of the previous year.
- Total operating costs fell from 5.2 billion Swiss francs in the previous quarter to 3.9 billion Swiss francs.
- The investment banking division had net sales of $ 3.9 billion, an 80% increase over the previous year.
- The Wealth Management division generated net sales of CHF 3.9 billion for the quarter, a slightly higher figure than a year ago.
In response to the results, Octavio Marenzi, CEO of consulting firm Opimas, said in an email, “It’s a shame that Credit Suisse’s investment banking arm wanted to deliver one of its best quarters ever to Archegos, ahead of the costs involved.”