On Thursday, the bank said it placed notes that convert to stock in six months to counter damage to its capital position from the loss and new charges imposed by the Swiss financial regulator. The offering will be based on the bank’s share price in the coming days and could raise close to $2 billion in fresh capital.
It said it had only a small remaining exposure to Archegos as of Wednesday after selling 97% of its related positions, but lost another $655 million from the fund in the second quarter, adding to a $4.7 billion charge in the first quarter.
Switzerland’s financial regulator, Finma, said Thursday it has opened enforcement proceedings against the bank over how it handled the risks around Archegos.
Credit Suisse shares fell as much as 5% on the news of the capital raising. Its stock has sunk by around a third since the end of February even as bank shares in general have performed well thanks to economies rebounding from Covid-19 lockdowns.
Cushioning the blow from Archegos, Credit Suisse had an otherwise strong quarter as investment banking activity boomed across Wall Street. The bank is a leading sponsor of special-purpose acquisition companies, or SPACs, a booming corner of the fundraising world.
Revenue at Switzerland’s second-largest bank by assets after
UBS Group AG
rose 31% to about $8.3 billion from client activity in surging markets. Its loss for the quarter was 252 million Swiss francs, or about $275 million.
Revenue at Credit Suisse’s investment bank was up 80%, buoyed by corporate deal making and selling stock and bonds. Credit Suisse said its wealth management businesses, which doesn’t report as a single division, brought in about $4.23 billion in revenue, up 3% from a year earlier.
But the ability of the bank to generate outsize profits in its investment bank going forward are overshadowed by the massive loss from Archegos. To prevent future blowups, the bank said it would resize its prime brokerage operations that service hedge fund and family offices.
It didn’t signal a full retreat, however, noting that it will focus on key clients. In a sign that it isn’t willing to shrink the investment bank significantly, it will target a measure of its assets in that division at end 2020 levels.
Credit Suisse has been the hardest hit of the lenders to Archegos, a U.S. family investment firm that took huge bets on a few stocks with borrowed money. The Wall Street Journal reported Wednesday that the bank built up $20 billion in exposure to investments related to Archegos, but struggled to monitor them.
Credit Suisse has been the hardest hit of the lenders to Archegos, a U.S. family investment firm that took huge bets on a few stocks with borrowed money. Other banks lost money as well when Archegos couldn’t meet margin calls, but they were able to exit positions more quickly. The fund’s problems came just weeks after Credit Suisse warned losses could be material from the collapse of another bank client, Greensill Capital, with which Credit Suisse ran a $10 billion set of investment funds.
Finma also said it opened enforcement proceedings into the Greensill funds. Credit Suisse said it marked down a loan owed by Greensill, but signaled it doesn’t plan to compensate investors who placed their money in the funds.
“We have not indemnified the investors in these funds. These are third-party investors,”
Credit Suisse’s chief financial officer, said Thursday.
The double blow of Archegos and Greensill represents the bank’s biggest test in years and comes at a time of a leadership transition.
took over a year ago as chief executive after his predecessor,
was forced out after the bank was caught spying on a recently departed executive.
The bank’s longtime chairman,
will retire after an annual shareholder meeting next week. He will be replaced with an outsider,
PLC Chief Executive
On Thursday, Mr. Gottstein said the Archegos loss was unacceptable. The bank cut its dividend and pushed out its heads of risk, investment banking and equities. Its board and regulators are looking into what went wrong.
Credit Suisse said it is strengthening risk controls in the prime brokerage unit that serviced Archegos, adding that it expects to reduce the size of its business serving hedge funds.
Credit Suisse said a main measure of resilience, its common equity Tier 1 capital ratio, slipped to 12.2% from 12.9% at the end of December. It is placing about 203 million new shares with investors through convertible notes, which will lift the ratio back toward 13%.
Write to Margot Patrick at email@example.com
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