Credit Suisse swung to a 757m Swiss franc loss (£592m) in the first quarter as the bank reeled from the collapse of US hedge fund Archegos that wiped out what would have otherwise been its best quarterly performances in at least a decade.
The bank has taken the biggest hit from the Archegos collapse among its peers, logging a SFr4.4bn charge in the first quarter. It comes after Archegos, one of its prime brokerage clients, was forced to liquidate almost $20bn (£14bn) in assets last month in a fire sale that reverberated across global markets.
The pre-tax loss, which Credit Suisse executives called “unacceptable”, compares with a SFr1.2bn profit during the same period last year.
Credit Suisse said that, excluding Archegos, it would have made a SFr3.6m profit in the first three months of the year. It would have been one of the lender’s best quarterly financial results in at least a decade.
The bank expects to take a further SFr600m hit in the coming months as it continues to unwind the hedge fund’s investments. Credit Suisse has so far sold off 97% of the shares it held as part of the Archegos account.
It also announced plans to raise SFr1.7bn from investors as it tries to rebuild its balance sheet.
The Swiss regulator, Finma, announced on Thursday it had launched enforcement proceedings against Credit Suisse related to the Archegos loss. It will investigate “possible shortcomings in risk management” and will continue to exchange information with regulators in the UK and US, who are also looking into the matter.
Finma also confirmed it is investigating the lender’s exposure to Greensill Capital.
The Swiss banking giant said it took a $30m (£21.5m) charge after Greensill collapsed in early March, as it expects to claw back less cash from administrators who are currently winding down the business. It is also working to reclaim money for customers who invested in Greensill loans that were packaged up as investments and sold off via a series of Credit Suisse funds.
Finma has ordered Credit Suisse to introduce short-term measures to help protect the bank’s financial position as investigations get under way, including cutting down some of its riskier business operations and suspending bonuses. “These precautionary and temporary measures are intended to complement and reinforce steps already taken by the bank,” Finma said.
Credit Suisse shares were down 4.8% on Thursday afternoon.
The flurry of bad news comes a week before Credit Suisse is set to welcome António Horta-Osório, the outgoing Lloyds Banking Group chief executive, as its new chairman after its annual general meeting on 30 April.
Credit Suisse executives insisted on Thursday that steps had been taken to learn lessons from the bank’s relationships with Greensill and Archegos, following their high-profile failures. It has already replaced key executives and cut employee compensation by SFr109m, most of which related to lower bonuses.
“What’s happened in respect of these two matters is clearly completely unacceptable,” the chief financial officer, David Mathers, said.
“As you know, the board of directors is reviewing both matters thoroughly. And we will ensure that all appropriate lessons are learned from this. Our priority is ensuring that this happens, and that we sustain the momentum that we continue to see in the franchise, and continue to serve our clients across the world.”
The bank said it was planning to “substantially” cut the size of its prime brokerage division, which was responsible for its relationship with Archegos, by reducing the volume of loans offered to customers like hedge funds by $35bn. That is about a third of the total loans offered through the prime brokerage business.
Executives also reiterated that they would take “all appropriate legal action” to protect the interests of investors who put their money in the bank’s Greensill funds. Last month, it emerged that Credit Suisse instructed trustees to file wind-up orders against one of Greensill’s largest customers, Sanjeev Gupta’s GFG Alliance, to try to recoup its losses.
“The fallout from two high-profile insolvencies – Greensill and Archegos – is a real headache for Credit Suisse that will not go away,” said Alex Jay, head of insolvency at UK law firm Stewarts. “The capital raise will help alleviate immediate concerns, but the losses involved mean that the bank will certainly be taking action to recover what it can. That latter issue will play out through the insolvency processes that are ongoing too, and will likely run for some time.”