Credit Suisse Group Update
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The collapse of the family office Archegos Capital continues to put pressure on Credit Suisse’s performance, as the Swiss bank reported a 78% decline in profit in the second quarter.
The group’s investment bank was the first to bear the brunt, with revenue falling 41% from the same period last year to US$1.7 billion because its risk appetite declined after a series of scandals.
The past six months have been one of the most turbulent periods in the bank’s 165-year history.
The double crises surrounding the collapse of niche financial companies Greensill Capital and Archegos led to the liquidation of US$10 billion in investment funds, losses of US$5.5 billion, the departure of a large number of executives, and the threat of legal action by clients.
“We take these two incidents very seriously, and we are determined to learn all the right lessons,” said Thomas Gottstein, chief executive officer of Credit Suisse.
“We have significantly reduced risk-weighted assets and leverage exposure, improved the risk profile of investment banking’s main service businesses, and enhanced the overall risk capability of the entire bank.”
Net income in the second quarter fell from 1.2 billion Swiss francs to 253 million Swiss francs.
On Thursday, the bank also issued a stern report based on more than 80 interviews and 10 million documents, pointing out the failure of its law firm Paul Weiss on Archegos’ losses. The report highlighted the failure of the bank’s main service department to effectively manage risk—mainly the prime brokers and risk managers—even though it did not find fraudulent acts committed by individuals or by the bank itself.
In response, Credit Suisse stated that it is taking a number of measures to improve its 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 previously paid bonus.
Analysts had previously expected that the bank’s revenue growth would slow down due to the decline in risk appetite caused by the scandal. They also predict that after a series of executive departures and a blow to customer confidence, revenue will fall in the long term.
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 $5.5 billion loss caused by the collapse of former hedge fund manager Bill Hwang’s Archegos made Credit Suisse particularly embarrassing because British “Financial Times” report Despite providing billions of dollars in credit to the family office, the bank earned only $17.5 million from this 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 program.
Swiss lender Poached Two Goldman Sachs executives were responsible for overseeing risk management and technology, and they also formed a New group Monitor the transaction risks of its investment banks.