Investors seek answers on Archegos, Greensill

The logo of the Swiss bank Credit Suisse can be seen on March 24, 2021 at the headquarters in Zurich.

Arnd Wiegmann | Reuters

After the booming profits from Wall Street rivals, Credit Suisse is expected to post a significant loss on Thursday as it tackles the aftermath of two high profile crises.

The Swiss lender announced earlier this month that it had suffered $ 4.7 billion in success from the collapse of the US family hedge fund Archegos Capital and expects a pre-tax loss of around CHF 900 million in the first quarter Francs ($ 960.4 million).

The Archegos saga resulted in the departure of the investment bank’s CEO and the bank’s chief risk and compliance officer. Before the collapse of UK supply chain finance firm Greensill Capital, there was a separate asset management reorganization. Credit Suisse had $ 10 billion tied to Greensill.

Several US banks, which also acted as prime brokers for Archegos, were able to exit their trading positions after the hedge fund failed to meet margin calls and have since posted some noticeable profit hits in the first quarter.

Goldman Sachs reported a nearly six-fold increase in net income while Morgan Stanley’s profits rose 150% despite Archegos’ losses of $ 911 million.

Credit Suisse has indicated that, aside from Archegos and Greensill sagas, it was on its way to its strongest underlying quarter in terms of financial performance for a decade.

However, investors will be looking for answers from the bank on how much exposure it is to Archegos and Greensill, and if more hits can be expected in the second quarter.

Questions that are “unlikely” to be answered

“Investors are unlikely to have answered all of their questions by this point, particularly with regards to greensill risks, where the group has kept regular updates on updates,” said Amit Goel, co-head of equity research for European banks Barclays, opposite CNBC on Wednesday.

“For Archegos, the group can add more color when all exposure is over, but if it is not they cannot disclose the remaining positions / risks.”

In a little more detail, expect what steps management is taking to address risk management issues within the bank, suggested Goel, including the staffing changes that have been made to the overhaul of the investment banking and wealth management business over the past few weeks.

According to the sagas of Archegos and Greensill, the bank has launched two independent investigations into both investment banking and asset management. According to Morningstar European Banks Equity Analyst Johann Scholtz, a possible backlash by the Swiss supervisory authority FINMA will also be on the radar of investors.

Scholtz also said he will be looking for evidence that “clear and tangible steps have been taken to improve risk management” and for an “indication of the long-term impact of recalibrating risk appetite on revenue.”

“I expect CS will try to focus the conversation more on the company’s good underlying performance,” he added.

Franchise Impact

The Financial Times reported last week, citing sources familiar with the bank’s operations, that Credit Suisse had made cuts in provisions for bonus pools and other one-time items. Some analysts fear that this will deprive employees of their rights.

“In relation to the risk of further franchise impacts, we and investors will examine whether the group took steps to support earnings and capital during the quarter that could have a negative impact in the future,” said Goel.

“For example, wide cuts in compensation in the IB (investment bank), which apparently feed into the consensus of sell-side analysts, which translates into a much lower cost / income ratio for (the first quarter of 2021) in the IB than in the IB shows previous periods. “

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