Credit Suisse weighs the replacement of Risk Chief in the impending uproar of managers

Credit Suisse Group AG leaders are discussing the replacement of chief risk officer Lara Warner, while sparing Chief Executive Officer Thomas Gottstein, as the people briefed on the matter say they could amount to billions of losses from the collapse of Archegos Capital Management.

The bank plans to provide investors with an update on the ramifications of Archegos, including the plight of top executives such as investment bank chief Brian Chin, two of the people said. They also said the Swiss company is planning a review of its prime brokerage business, which is housed in the investment bank.

“I think it is unfair at this stage to give Mr. Gottstein this notice,” said David Herro of Harris Associates, one of the bank’s largest shareholders, in a Bloomberg TV interview last week. He’s tried and tried to reorganize Credit Suisse, but Rome wasn’t built in a day. Unless we see evidence to the contrary, I think he is the right person to continue running the organization. “

A spokesperson for Credit Suisse declined to comment.

Read More: How Credit Suisse Braces For Astonishing Losses That Are Probably Going To Run In The Billions

The No. 2 Swiss bank is one of the biggest potential losers in the collapse at Archegos, which could collectively cost banks $ 10 billion, JPMorgan Chase & Co. analysts estimate. That came just weeks after the collapse of Greensill Capital, a lender who managed funds that Credit Suisse offered to its asset management clients.

The one-two punch has made Credit Suisse the worst-performing major bank stocks in the world so far this year, as a strong start to its investment banking business was overshadowed by the bank’s exposure to Greensill and Archegos, a New York-based family office. .

The bank’s 1.5 billion Swiss francs ($ 1.6 billion) share buyback program is in danger of being interrupted for a second time – having first stopped last year at the start of the pandemic – and losses would reduce dividend payments can put pressure. S&P Global Ratings cut the outlook for the bank from stable to negative amid concerns about risk management.

A profit increase of more than $ 5 billion would put pressure on Credit Suisse’s capital position, according to JPMorgan. Swiss regulator FINMA raised Credit Suisse’s requirements under its Pillar 2 buffer, after the bank warned it could incur a loss due to the winding down of the supply chain financing funds linked to Greensill.

These are the leaders of Credit Suisse who will be at the center of the action for the next days and weeks:

Thomas Gottstein, director

The surprising choice to take over in February 2020, following an espionage scandal that ousted Tidjane Thiam, Gottstein previously led the bank’s operations in Switzerland. When he got the job, he stated it was “ time to look ahead, ” but Credit Suisse’s problems have only spread since then.

First came a write-down of $ 450 million on the bank’s stake in hedge fund York Capital and costs related to a lengthy lawsuit over residential mortgage-backed securities.

Then Greensill’s financial activities blew up in the supply chain. The board of directors and regulators are examining how Credit Suisse’s financing funds, linked to the Greensill business, were sold to investors, including its own wealth management clients, and how the bank handled conflicts of interest and its business relationship. with Greensill, Bloomberg News reports.

The Archegos episode raises questions about his way of handling risk management, especially since one of his first major initiatives was to merge the risk and compliance departments to streamline and improve risk decision-making.

“Risk management is still not where they should be,” Herro said. “Hopefully this is a wake-up call to accelerate the cultural change needed in this business.”

Lara Warner, Chief Risk and Compliance Officer

With dual Australian-American citizenship and a career that has ranged from equity analyst to financial director of the investment bank, Warner has taken a less traditional path than many of her peers to the highest echelons of risk management and Credit Suisse’s board of directors. She was the most prominent member of Thiam’s inner circle to secure a spot at the top of Gottstein. Her promotion to chief risk and compliance came in the realignment that combined the two units.

She faces some of the same tricky questions Gottstein has about risk management practices and culture following her personal involvement in taking out a loan to Lex Greensill in October.

In a banking industry predominantly run by men steeped in risk models, its more business-oriented approach has not always fared well, according to conversations with half a dozen current and former employees who spoke on condition of anonymity. Several left after she took it, while those who stayed were challenged to be more involved with the company, according to people who worked with her.

“For the good things of Credit Suisse to flourish, you have to get the bad things out of the way and that is the risk management that has plagued this company for most of a decade,” said Herro.

Brian Chin, CEO of the investment bank

Along with Warner, Chin was a big winner in Gottstein’s turmoil last summer, when the trading chief also gained control of the investment bank following a merger of the two units.

Its promotion – at least in part – was due to a turnaround in fortunes in world markets during the latter part of Thiam’s time. Now his company is under a lot of pressure because of Archegos’ losses.

Emissaries from several of the world’s largest brokers tried to deal with the chaos before the drama hit the public domain last Friday. Credit Suisse’s idea was to achieve some sort of stoppage to figure out how to relax positions without causing panic, according to knowledgeable people.

That strategy failed, causing banks to sell. Credit Suisse and Nomura issued profit warnings on Monday. Later in the day, Gottstein and Chin held a phone call with CEOs and other executives where they said the lender was still trying to figure out the extent of the hit and told the bankers that this was a time to work together and not to. focus on the potential. impact on wages.

Paul Galietto, stock trading head

Galietto joined Credit Suisse in 2017 after a stint at UBS Group AG and a two-decade career at Merrill Lynch & Co. He headed Credit Suisse’s prime brokerage unit before heading up stock trading two years ago.