Credit Suisse Books Expected Archegos Loss; "Strong" Underlying Results

Tom Burroughes Group Editor 23 April 2021

Credit Suisse Books Expected Archegos Loss;

The Asia-Pacific division reported adjusted pre-tax income of $531 million. There were SFr5.4 billion of net new assets in Asia. At the overall group level, the Swiss bank, as expected, logged a significant loss from the blow-up of the Archegos hedge fund in the US to which it was exposed as a prime broker.

Credit Suisse booked an expected net loss in the first three months of 2021 – SFr252 million ($275.5 million) – as a result of the heavy blow sustained by the Archegos hedge fund blow-up to which it was exposed – taking the shine off what would otherwise have been a strong quarter. On a pre-tax basis, the Q1 loss was SFr757 million.

The Zurich-listed bank said that provision for credit losses surged to almost SFr4.4 billion in Q1, standing at SFr4.394 billion, up from SFr568 billion a year ago – or up by 80 per cent. Return on tangible equity attributable to shareholders slipped into to the red, to -2.6 per cent, against 13.1 per cent a year before.

To bolster its capital, the bank announced that it will offer two series of mandatory convertible notes (MCNs), Series A MCNs and Series B MCNs, which will be convertible into 100 million shares and 103 million shares of Credit Suisse Group, respectively. The offering is expected to close on or around 12 May. Credit Suisse has suspended its share buyback programme.

When the Archegos impact is excluded, pre-tax income surged by 280 per cent year-on-year to SFr3.596 billion, on a 35 per cent rise in net revenues to SFr7.430 billion. 

Wealth management net revenues rose by 3 per cent to SFr3.882 billion, while investment banking net revenues (measured in dollars) rose by 80 per cent, to $3.888 billion.

“Our results for the first quarter of 2021 have been significantly impacted by a SFr4.4 billion charge related to a US-based hedge fund. The loss we report this quarter, because of this matter, is unacceptable,” Thomas Gottstein, chief executive, said. 

Within Asia, Credit Suisse said its franchise revenues rose by 39 per cent year-on-year to $1.6 billion, now accounting for 19 per cent of group revenues. 

Client business volumes – assets under management - climbed to a record $419 billion, from $402 billion at year-end 2020, mainly due to new inflows from clients.

The Asia-Pacific division reported adjusted pre-tax income of $531 million. There were SFr5.4 billion of net new assets in Asia.

Archegos impact
The bank had been a prime broker to the New York-based Archegos fund – structured as a family office, and was hit, along with Nomura and a handful of other banks, by the fund’s inability to meet margin calls as its investment bets turned sour. The losses, along with the Greensill supply-chain finance saga to which the bank was exposed, have made for a turbulent start to 2021 for the bank. A number of C-suite figures have left the bank. 

Gottstein said: “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. We will work to ensure Credit Suisse emerges stronger.”

“However, it is also important to recognise that our underlying 1Q21 financial performance, across all divisions, was strong, supported by solid results in Switzerland, and strong growth in APAC and investment banking,” he said. 

Net new assets
Credit Suisse said it logged net new assets (NNA) SFr28.4 billion in Q1, against SFr5.8 billion a year before and SFr8.4 billion in the fourth quarter of last year. There was “strong asset gathering” across the wealth management businesses with Swiss Universal Bank (SUB) private clients area recording SFr2.2 billion, International Wealth Management (IWM) private banking recording SFr7.2 billion and Asia-Pacific recording $5.4 billion, as shown earlier (Asian results are given in dollars). Group assets under management totalled SFr1.6 trillion at the end of 1Q21, up from SFr1.5 trillion at the end of December 2020.

The bank said that it had a Common Equity Tier 1 ratio of 12.2 per cent at the end of March, and it intends to reach about 13 per cent.

Looking ahead, the lender said: “Overall, we would expect market volumes to return to lower, and more normal, levels in the coming quarters. We expect a residual impact of approximately SFr600 million from the US-based hedge fund matter in 2Q21, as we have now exited 97 per cent of the related positions. In wealth management, we anticipate broadly stable net interest income and improving recurring commissions and fees benefiting from higher levels of AuM.”

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