After the booming profit beats of its Wall Street rivals, Credit Suisse is expected to report a significant loss as it comes out of two high-profile crises.
The Swiss lender announced earlier this month that it dealt with a $4.7 billion hit from the meltdown of U.S. family hedge fund Archegos Capital and now hopes a pre-tax loss of around 900 million Swiss francs ($960.4 million) for the first quarter.
The Archegos saga led to the departure of the bank’s investment bank CEO and chief risk and compliance officer, and was preceded by a separate shakeup in the asset management division following the collapse of British supply chain finance firm Greensill Capital. Credit Suisse managed $10 billion in funds tied to Greensill.
Several U.S. banks which also served as prime brokers to Archegos abled to exit their trading positions following the hedge fund failed to meet margin calls, and have since produced some eye-catching first-quarter profit beats.
Goldman Sachs reported an almost six-fold increase in net income while Morgan Stanley’s profit shot up by 150%, despite it taking a $911 million loss from Archegos.
Credit Suisse has pointed out that besides the Archegos and Greensill sagas, it was on course for its strongest underlying quarter for a decade in terms of financial performance.
But, investors will be expecting answers from the bank as to the extent of its exposure to Archegos and Greensill and whether further hits can be expected in the second quarter.
‘Unlikely’ to be answered questions
“Investors are unlikely to have all their questions answered at this stage, in particular with respect to Greensill risks, where the group has been providing periodic updates,” Amit Goel, co-head of European banks equity research at Barclays, said.
“For Archegos the group may give more color if all the exposure has been exited, but if this isn’t the case they may not disclose the residual positions/risk.”
A little more detail can be likely to come out on the steps management is taking to address risk management issues within the bank, Goel suggested, those changes may include the personnel changes made amid overhauls of the investment banking and asset management businesses in recent weeks.
