Credit Suisse is expected to record a substantial loss on Thursday, as it navigates the fallout from two high-profile crises, despite its Wall Street rivals’ booming profit beats. The Swiss lender revealed earlier this month that the collapse of the US family hedge fund Archegos Capital cost it $4.7 billion, and that it now expects a pre-tax loss of about 900 million Swiss francs ($960.4 million) in the first quarter.
The Archegos saga resulted in the bank’s investment, the bank CEO and chief risk and enforcement officer resigning, and it was followed by a separate shakeup in the asset management division following the collapse of British supply chain finance company Greensill Capital. Greensill was linked to $10 billion in funds managed by Credit Suisse. After Archegos struggled to reach margin calls, some US banks that acted as prime brokers to the hedge fund, were able to exit their trading positions and have since posted some eye-catching first-quarter profit beats. Despite taking a $911 million loss from Archegos, Goldman Sachs posted a nearly six-fold rise in net profits, while Morgan Stanley’s profit increased by 150 percent.
Apart from the Archegos and Greensill sagas, Credit Suisse said it was on track for its best underlying quarter in a decade, in terms of financial results. Investors, on the other hand, will be looking for answers from the bank about the extent of its exposure to Archegos and Greensill, as well as whether further losses are likely in the second quarter.
On Wednesday, Amit Goel, co-head of European banks equity research at Barclays, told CNBC that “investors are unlikely to have all their questions answered at this point, in particular with respect to Greensill risks, where the group has been providing periodic updates.” “For Archegos, the community can provide more detail if all exposure has been exhausted, but they may not reveal the remaining positions/risk if this is not the case.” Goel indicated that a little more information on the steps management is taking to resolve risk management concerns within the bank, including staff changes made in the wake of recent overhauls of the investment banking and asset management businesses, can be anticipated.
In the aftermath of the Archegos and Greensill sagas, the bank has conducted two independent inquiries into both, its investment banking and asset management activities, but investors should also be concerned about potential retaliation from Swiss regulator FINMA, according to Morningstar European Banks Equity Analyst Johann Scholtz. Scholtz also mentioned that he will be searching for proof of “clear and concrete measures taken to enhance risk management” as well as a “indication of what the long-term revenue effect of a recalibration of risk appetite might be.” “I expect CS to try to direct the discussion more towards the business’s positive underlying performance,” he added. Credit Suisse had slashed bonus pool accruals and other one-time booked products, a step that some observers believe would alienate employees. “We and investors will be looking to see if the company has taken measures to support earnings and capital in the quarter, which may have a negative effect in the future,” Goel said.
