Credit Suisse raises $2bn after 'unacceptable' Archegos loss

Oscar Williams-Grut
·Senior City Correspondent, Yahoo Finance UK
·4-min read

WATCH: Credit Suisse reports loss after Archegos scandal

Credit Suisse (CSGN.SW) has been forced to tap investors for money to repair its balance sheet as the fallout from the Archegos Capital blowup continues.

The Swiss bank on Thursday announced a loss for the first quarter and raised roughly $2bn (CHF1.8bn, £1.4bn) from investors to help bolster its capital position. Separately, Switzerland's financial regulator opened an investigation into the bank's dealing with Archegos.

Credit Suisse said on Thursday it had raised roughly $2bn through the sale of mandatory convertible notes to "a selected group of core shareholders, institutional investors and ultra-high-net-worth individuals." Barclays analysts said the fundraising hadn't been anticipated.

Thomas Gottstein, the CEO of the Swiss bank Credit Suisse. Photo: Ennio Leanza/Keystone via AP, file
Thomas Gottstein, the CEO of the Swiss bank Credit Suisse. Photo: Ennio Leanza/Keystone via AP, file

Credit Suisse said its "capital position remained solid" but said funds would be used to "further strengthen" its balance sheet.

READ MORE: Hedge fund blowup sends shockwaves through Wall Street and the City

The fundraising comes in the wake of the Archegos Capital blow-up. Archegos was a little-known New York family office that spectacularly collapsed last month after making a series of highly leveraged bets on tech and media stocks. Archegos dealt with a number of investment banks but Credit Suisse has been the worst affected by the collapse. Chief executive Thomas Gottstein told media his bank was one of the top three brokerages working with Archegos.

READ MORE: Credit Suisse warns Archegos Capital blowup will cost it £3.4bn

The collapse pushed Credit Suisse to a CHF757m (£686m, $827) loss in the first quarter, the bank said. While slightly better than initial guidance from the bank, it compares poorly to a CHF1.2bn profit made a year earlier.

The loss came despite a 30% jump in revenues, which was driven by surging activity at its investment bank where revenues accelerated by 80%. That strong performance was wiped out by a CHF4.4bn provision taken to cover losses from Archegos. Credit Suisse's investment bank lost CHF 2.5bn in the quarter.

WATCH: Credit Suisse takes $4.7bn hit from hedge fund collapse

Gottstein admitted the performance was "unacceptable".

"We have taken significant steps to address this situation as well as the supply chain finance funds matter," Gottstein said in a statement, referencing issues with another client, Greensill Capital.

"Among other decisive actions, we have made changes in our senior business and control functions; we have enhanced our risk review across the bank; we have launched independent investigations into these matters by external advisors, supervised by a special committee of the Board; and we have taken several capital-related actions."

READ MORE: Credit Suisse faces battle to win back trust after Archegos and Greensill

Credit Suisse said it was likely to take another CHF600m hit from Archegos in the second quarter as the bank still had about 3% of total positions to exit. The Wall Street Journal reported late on Wednesday that Credit Suisse's exposure to Archegos was as high as $20bn at one point. Gottstein declined to give details on a call with media.

FINMA, the Swiss finance regulator, on Thursday said it had opened a file on Credit Suisse's handling of Archegos. The watchdog will investigate "possible shortcomings in risk management" and confirmed ongoing proceedings related to Greensill.

FINMA has ordered the bank to make short-term changes, including "organisational and risk-reducing measures and capital surcharges as well as reductions in or suspensions of variable remuneration components."

"These precautionary and temporary measures are intended to complement and reinforce steps already taken by the bank," the regulator said.

Credit Suisse is making sweeping changes to its prime brokerage — the division that lent to Archegos — and will reduce leverage by $35bn, Gottstein said. The division will be "resized and de-risked," he told media.

Gottstein admitted there was "significant concern" among the bank's shareholders but said governance measures were "already being strengthened" and promised a "forensic analysis" of what went wrong in both the Greensill and Archegos cases.

"Our underlying result is a testament to the earnings power of Credit Suisse and to the commitment of our employees," Gottstein said in a statement. "And it makes it all the more important that we quickly and decisively resolve the issues we are currently dealing with."

Shares were down 6.7% in Zurich.

Credit Suisse shares slumped in Zurich. Photo: Yahoo Finance UK
Credit Suisse shares slumped in Zurich. Photo: Yahoo Finance UK