Credit Suisse Set To Lose $4.7 Billion Due To Collapse Of US Hedge Fund

The Swiss bank Credit Suisse lost nearly $4.7 billion as well as the jobs of its two top executives because of the collapse of US hedge fund Archegos Capital last month.

After taking a charge of 4.4 billion Swiss francs ($4.7 billion) in relation to the failure of Archegos, the bank was likely to report a pretax loss of 900 million Swiss francs ($959 million) for the first quarter of the current year, the Swiss bank said on Tuesday.

“The significant loss … relating to the failure of a US-based hedge fund is unacceptable,” CEO Thomas Gottstein said in a statement.

“Serious lessons will be learned. Credit Suisse remains a formidable institution with a rich history.” Gottstein added.

Jobs of chief risk officer Lara Warner and top investment banker Brian Chin of the bank would be axed because of the debacle, Credit Suisse said. Further, the bank also said that while the bank’s board chairman Urs Rohner will give up 1.5 million Swiss francs ($1.6 million) in compensation, the other members of the executive board will also not be given their bonuses for 2020.

Dividends would be slashed and share buybacks would also be suspended because of the hit, Credit Suisse also said.

Huge debts were taken in by Archegos and invested that money to buy large quantities of shares in various stocks including in media companies such as ViacomCBS and Discovery. However the investment firm was unable to pay back its lenders after there was a drop in share prices of the stocks that it had invested the borrowed money in.

There have been calls for more regulation of firms in the United States that invest on behalf of families or a small number of clients since the implosion of the hedge fund which also managed the wealth of investor Bill Hwang.

There are also a number of other banks that have been hit by the collapse of Archegos – including Japan’s Nomura which has warned of potential loss of up to $2 billion. Warning of losses of about $300 million have also been issued by another Japanese lender Mitsubishi UFJ Securities.

“We need transparency and strong oversight to ensure that the next hedge fund blowup doesn’t take the economy down with it,” Democratic Sen. Elizabeth Warren said in a statement last month.

The loss due to the collapse of Archegos is the second such major hit in recent weeks for Credit Suisse. The Swiss bank froze $10 billion in investment funds that were linked to failed UK supply chain finance firm Greensill Capital earlier in March. Greensill Capital provided cash advances to companies that owed money by customers.

An accounting scandal at Luckin Coffee had previously tarnished the reputation of the Swiss bank. When the company went public on the Nasdaq in 2019, Credit Suisse was an underwriter of Luckin Coffee. But following revelations that this Chinese firm had fraudulently inflated sales, it was forced to pull off the US exchange last year.

Its involvement with both Archegos and Greensill “require substantial further review and scrutiny”, Credit Suisse said in a statement. “The board of directors has launched investigations into both of these matters which will not only focus on the direct issues arising from each of them, but also reflect on the broader consequences and lessons learned,” it added.

(Adapted from CNN.com)

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