Credit Suisse Group Update
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Credit Suisse is preparing to take legal action against the collapsed family office Archegos Capital. Earlier, a severe independent report on the bank’s $5.5 billion loss found that the bank may be “deceived” by Archegos, but its employees also ignored the risks and lacked “capacity” .
The law firm Paul Weiss released a report on Thursday morning that these losses were the result of “fundamental failures in management and control” and “a poor attitude to risk” of Credit Suisse Investment Bank. But it added that Archegos may have “deceived” Credit Suisse.
Credit Suisse was the hardest hit among several investment banks Lost more than 10 billion U.S. dollars When Archegos collapsed this spring.
Coupled with the blow of the financial company Greensill Capital’s collapse a few weeks ago, Credit Suisse has experienced one of the toughest six months in its 165-year history.
These two crises led to the liquidation of a $10 billion investment fund, the largest trading loss in history, a series of senior management departures, and the threat of legal action by clients.
Credit Suisse chief executive Thomas Gottstein told the Financial Times that Paul Weiss’s report contained some “hard facts” about the shortcomings of Credit Suisse. But when asked about the possibility of legal action, he added that the bank “has a legal claim against Archegos-this is the basis for our action.”
David Mathers, the bank’s chief financial officer, told reporters earlier: “We intend to represent our shareholders and seek all potential avenues for recovery.”
The findings of the 172-page report are that in the summer of 2020, Credit Suisse’s potential exposure to Archegos is more than 25 times higher than the bank’s risk limit. However, the staff of the prime brokerage department successfully argued that Archegos should be evaluated under the bank’s “bad week” scenario, rather than the more severe “severe stock crash” scenario.
At that time, a risk analyst at Credit Suisse raised concerns about the prime brokerage to his supervisor, saying that “the team is managed by a salesperson who learns from people for roles” and he does not “believe in a backbone.”
The report also criticized Credit Suisse for failing to learn from another client, the hedge fund Malachite Capital Management’s default in March 2020, which caused the bank to lose US$214 million.
The report states: “Archegos seems to have deceived CS and confused the true scope of its position, which Archegos has accumulated during an unprecedented global pandemic.”
“In other words, business and risk [division] There is enough information before the events of the week [Archegos’s collapse] This should prompt them to take measures to at least partially mitigate the major risks Archegos poses to CS. “
In response to the report, Credit Suisse said it is improving risk management. It added that after reviewing the roles played by 23 people, it fired nine employees — including the two heads of its main service business — and imposed a fine of $70 million on employees, including recovering bonuses.
Archegos hired restructuring and bankruptcy advisersAs well as lawyers and public relations consultants, since the financial crisis in March, most of the $10 billion in assets under management have been wiped out. It did not immediately respond to a request for comment.
The bank reported on Thursday that its profit fell 78% in the second quarter. Its investment bank was the first to bear the brunt, with revenue falling 41% year-on-year to US$1.7 billion because it avoided higher-risk businesses.
Net income in the second quarter fell from 1.2 billion Swiss francs to 253 million Swiss francs. In early Thursday trading, Credit Suisse shares fell more than 3%.
Analysts had expected revenue growth to slow down because of reduced risk exposure in response to scandals. They also predict that after some executives leave and customer confidence is hit, there will be a long-term decline in earnings.
Credit Suisse’s operating expenses fell by 1% year-on-year. The bank said that this was mainly due to the impact of Archegos and Greensill, which reduced employee bonuses.
The USD 5.5 billion loss caused by the collapse of Archegos is particularly embarrassing for Credit Suisse, because Reported by the Financial TimesDespite providing billions of dollars in credit to the family office, the bank only made a profit of $17.5 million from the relationship last year.
Since the former Lloyd Bank Group CEO Antonio Horta-Osorio assumed the chairmanship three months ago and pledged to conduct a comprehensive review of the bank’s risk management, strategy and culture, Credit Suisse has begun to strengthen its risk management .