Earnings

Credit Suisse reports loss after Archegos scandal; CEO insists there's no risk culture problem

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Key Points
  • "The loss we had in Archegos was unacceptable," Credit Suisse CEO Thomas Gottstein told CNBC Thusday.
  • The Swiss lender expects to take an additional loss in the second quarter of around 600 million Swiss francs.
  • Shares fell 5% in early European trading hours.

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VIDEO4:0104:01
Credit Suisse CEO hasn't offered resignation over 'unacceptable' Archegos loss

LONDON — Credit Suisse reported Thursday a net loss of 252 million Swiss francs ($275 million) for the first quarter, at a time of increased pressure on the bank. Shares fell 5% in early European trading hours.

It said the loss reflected a "significant charge with respect to the US-based hedge fund matter in 1Q21 (first quarter), offsetting positive performance across wealth management and investment banking."

It comes after the Swiss lender warned of heavy losses earlier this month following a scandal involving Archegos Capital, a U.S. based hedge fund, which collapsed after taking on too much risk. Credit Suisse took a hit of 4.4 billion Swiss francs as a result, which it said on Thursday had "significantly impacted" first-quarter results.

In addition, investment bank CEO Brian Chin and chief risk and compliance officer, Lara Warner, both stepped down. The executive board decided to waive bonuses for the 2020 year, and also cut the proposed dividend.

Credit Suisse said Thursday that adjusted net revenue would have hit 7.4 billion Swiss francs excluding significant items if it hadn't been for the Archegos situation. This would have represented a 35% increase from a year ago.

VIDEO2:4502:45
Credit Suisse CEO: We have addressed recent issues hitting share price

Putting the Archegos scandal aside, the bank's Chief Executive Thomas Gottstein told CNBC's Geoff Cutmore on Thursday that this was "one of our best quarters in the history of Credit Suisse. Definitely the best quarter in the last 10 years."

"The loss we had in Archegos was unacceptable and we had to take actions in terms of management changes. We are reducing our exposure in this business, we are reviewing our risk, controls and systems in that area," Gottstein added.

In March, Credit Suisse also adjusted its asset management business and suspended bonuses after the collapse of Greensill Capital, a British supply chain finance firm.

No resignation

In his interview with CNBC, Gottstein said he had not offered his resignation to the board following the Archegos and Greensill cases.

"Look, this is the time for action, for remediation and to take the company to the next level. This is the time for solutions. We had a very difficult first quarter in terms of these two incidents, but at the same time, the operation performance that you saw in the first quarter proved our strategy was right and we are on the right track," Gottstein said.

When asked if the bank had a culture of taking on too much risk, he said: "We do not have a risk culture problem."

More losses ahead

Credit Suisse said Thursday it had exited 97% of its trading positions relating to the Archegos hedge fund and expected to report an additional loss in the second quarter of around 600 million Swiss francs.

The Swiss Financial Market Supervisory Authority said on Thursday it had opened enforcement proceedings against Credit Suisse due to its losses relating to Archegos' collapse. The regulator also said it had begun proceedings last month against the bank over the Greensill case.

"Supplementing measures taken by the bank, FINMA has in addition required various risk-reducing measures," the Swiss authority said in a statement.

Other highlights in Credit Suisse's first-quarter earnings:

  • CET 1 capital ratio, a measure of bank solvency, came in at 12.2%, down from 12.9% at the end of 2020.
  • Net revenue reached 7.6 billion Swiss francs, up from 5.2 billion Swiss francs in the fourth quarter of last year.
  • Total operating expenses fell to 3.9 billion Swiss francs from 5.2 billion Swiss francs in the previous quarter.
  • Its investment banking division reported net revenue of $3.9 billion, an increase of 80% from a year ago.
  • Wealth management division reported net revenue of 3.9 billion Swiss francs over the quarter, marginally higher from a year ago.

In response to the results, Octavio Marenzi, CEO of consultancy firm Opimas, said in an email: "It is such a shame – the Credit Suisse investment banking arm was about to turn in one of its best quarters ever, before the charges related to Archegos."

Maria Rivas, senior vice president at DBRS Morningstar, said the first quarter results "highlight how excessive risk taking can lead to significant losses, potentially impacting capital and investor and shareholder confidence."

She added, however, that the bank "seems to be working on addressing some of the recent failures in risk management and has made significant changes to management in different business areas involved in these matters."