The logo of the Swiss bank Credit Suisse can be seen at its headquarters in Zurich, Switzerland on March 24, 2021.
Arnd Wiegmann | Reuters
After soaring gains from its Wall Street rivals, Credit Suisse is expected to report a significant loss on Thursday as it navigates the fallout from two high-profile crises.
The Swiss lender announced earlier this month that it was hit $ 4.7 billion by the collapse of US family hedge fund Archegos Capital and now expects a pre-tax loss of approximately 900 million Swiss francs ($ 960.4 million). ) for the first quarter.
The Archegos saga led to the departure of the investment bank’s CEO and the bank’s chief risk and compliance officer, and was preceded by a separate turmoil in the asset management division in the wake of the collapse of British finance company Greensill Capital. Credit Suisse had linked $ 10 billion of funds to Greensill.
Several US banks that also served as prime brokers for Archegos managed to exit their trading positions after the hedge fund failed to meet the margin calls, and have since produced some eye-catching first-quarter earnings caps.
Goldman Sachs reported a nearly six-fold increase in net income, while Morgan Stanley’s earnings were up 150%, despite a $ 911 million loss from Archegos.
Credit Suisse has pointed out that, aside from the Archegos and Greensill sagas, it was on track to its strongest underlying quarter in a decade in terms of financial performance.
However, investors will be looking for answers from the bank regarding the size of its exposure to Archegos and Greensill and whether further hits can be expected in the second quarter.
Questions that are answered ‘unlikely’
“Investors are unlikely to answer all of their questions at this stage, particularly regarding Greensill risks, where the group has provided periodic updates,” said Amit Goel, co-head of European banking equity research at Barclays. Wednesday to CNBC. .
“For Archegos, the group is allowed to add more color when all exposure is exited, but if not, they are not allowed to disclose the remaining positions / risks.”
Slightly more detail can be expected about the steps management is taking to address risk management issues within the bank, Goel suggested, including the staff changes implemented in recent weeks during the overhaul of investment banking and asset management.
The bank has launched two independent investigations into both its investment banking and asset management in the wake of the Archegos and Greensill sagas, but potential backlash from Swiss regulator FINMA will also be on investors’ radar, according to Morningstar European Banks Equity Analyst Johann. Scholtz.
Scholtz also said he would be looking for evidence that “clear and tangible steps have been taken to improve risk management” and an “indication of what could be the long-term revenue impact of a reassessment of risk appetite”.
“I expect CS will try to steer the conversation more towards the good underlying performance of the company,” he added.
Franchise impact
The Financial Times reported last week, citing sources familiar with the bank’s operations, that Credit Suisse had cut back on its accrued bonus pool and other one-off entries, a move some analysts fear could be deprived of employees.
“In terms of risk of further franchise impact, we and investors will look to see if the group has taken steps to support earnings and capital in the quarter, which could have a negative impact going forward,” said Goel.
“ For example, wide cuts in compensation at the IB (investment bank), which appears to be factored into the sell-side analyst consensus, evidenced by a much lower cost: income ratio for (the first quarter of 2021) in the IB than in previous periods. “