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Credit Suisse Takes $4.7 Billion Hit Following Archegos Collapse

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Credit Suisse annouced Tuesday it will take a 4.4 billion franc ($4.7 billion) hit as a consequence of the collapse of the investment firm Archegos Capital Management which defaulted on highly leveraged margin calls last month and triggered a $30 billion firesale of stocks.

Key Facts

In a press release, the company announced the massive write-down will result in a pretax loss of about 900 million francs ($960 million) in the first quarter of 2020.

In a separate release, the company announced the exits of its Investment bank CEO Brian Chin and Chief Risk Officer Lara Warner from the company.

Former Bank of America Merrill Lynch executive Christian Meissner will take over as the new CEO of the investment bank while Joachim Oechslin, the company’s former chief risk officer, will temporarily take over the same role.

The company has also slashed its dividends, suspended its share buyback program and scrapped bonus payments for its top executives as part of the fallout.

The bank’s chairman Urs Rohner has also offered to forgo his annual compensation of 1.5 million franc for 2020.

Crucial Quote

“I recognize that these cases have caused significant concern among all our stakeholders,” the company’s CEO Thomas Gottstein said Tuesday. “Together with the board of directors, we are fully committed to addressing these situations. Serious lessons will be learned.”

Key Background

Last month, Archegos defaulted on highly leveraged margin calls which triggered a massive sell-off of several prominent U.S. media and Chinese tech stocks including ViacomCBS, Discovery, Baidu and Tencent Music. Credit Suisse was one of several major investment banks which helped facilitate Archegos’ leveraged bets and was hit by major losses after the incident. According to Bloomberg, the Swiss investment bank sold $2.3 billion worth of stocks tied to Archegos earlier this week. Last month, Japanese bank Nomura also forecast a “significant loss” for one of its U.S. subsidiaries, valued at “approximately $2 billion,” owing to the Archegos meltdown.

Tangent

The fallout of the Archegos collapse is the second major crisis that Credit Suisse has faced this year. Last month, the Swiss lender froze $10 billion in investment funds connected to now-insolvent startup, Greensill Capital. Greensill had borrowed from Credit Suisse and managed debt funds for the bank’s asset management clients, which the Swiss company had marketed as among its safest product. The bank, however, froze the funds in March after doubts were raised about Greensill’s lending practices, which then forced the startup to file for insolvency.

Further Reading

Credit Suisse Takes $4.7 Billion Hit on Archegos Meltdown (Wall Street Journal)

Credit Suisse Takes $4.7 Billion Archegos Hit, Replaces Warner (Bloomberg)


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