Credit Suisse CS -1.66%
Group AG said two executives responsible for its prime brokerage unit will be leaving in the wake of the $ 4.7 billion loss from the collapse of hedge fund Archegos Capital Management.
An internal memo on Monday said that John Dabbs and Ryan Nelson will immediately step down as co-heads of prime services, assisting the bank until mid-May for an orderly transition.
Their departure comes after Credit Suisse dismissed its top risk officer and the head of its investment bank this month. Several other employees working in equities and risk management also left.
Credit Suisse and other banks suffered heavy losses when Archegos, an American family investment company, failed to meet margin calls on large, concentrated stock positions in late March.
Credit Suisse was slow to wind down its positions compared to other banks and was left with the largest loss. It lent more to Archegos in relation to its size than other lending banks, The Wall Street Journal previously reported.
In addition to the departure of the staff, the bank started an internal investigation into what went wrong. The focus of the study was on the bank’s prime brokerage unit, which managed the relationship with Archegos and allowed the investor to build significant leverage in individual stocks.
Credit Suisse and other banks sold Archegos what are known as total return swaps, a type of contract that allows investors to have economic exposure to a stock without owning the underlying stock or publicly disclosing their positions in the markets.
Mr. Dabbs has worked for Credit Suisse since 2009. Mr. Nelson joined crosstown rival UBS Group AG in 2018. Together, they led a turnaround in the prime brokerage business, needing to focus on fewer clients to improve profits. Credit Suisse says it is one of the top four brokers in the US, based on industry rankings.
Prime brokerage units of banks serve hedge funds, help them execute trades, offer them credit, and introduce it to outside investors.
After revealing Archegos’ $ 4.7 billion loss on April 6, Credit Suisse cut its dividend to preserve capital, and Chief Executive Thomas Gottstein said “serious lessons will be learned.”
Archegos’s troubles came just weeks after the collapse of another Credit Suisse client, Greensill Capital, through which the bank managed a $ 10 billion set of investment funds. Credit Suisse says the costs associated with those funds and a loan to Greensill may be material, but has not provided a figure.
Credit Suisse will announce its first quarter profit on Thursday. In its April 6 statement, Credit Suisse said it expects to record a pre-tax loss of approximately $ 1 billion to reflect Archegos’ losses.
Write to Juliet Chung at [email protected] and Margot Patrick at [email protected]
Copyright © 2020 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8