Credit Suisse expects a further financial impact from its relationship with U.S. family office Archegos Capital Management to hit in the second quarter.
The banking group said in its first-quarter financial update Thursday that it expects a 600 million Swiss francs ($652 million) impact in the second quarter, following a 4.4 billion franc hit in the first quarter due to Archegos' failure to meet margin commitments late last month. Credit Suisse said it has now exited 97% of its business with Archegos.
The bank recorded a pre-tax loss of 757 million francs in the first quarter, compared with a 1.2 billion francs pre-tax gain for the same quarter of 2020.
"The loss we report this quarter, because of this matter, is unacceptable," Thomas Gottstein, CEO of Credit Suisse Group, said in the update. "Together with the board of directors, we have taken significant steps to address this situation as well as the supply chain finance funds matter."
The firm was forced in early March to terminate four supply chain finance funds, with about $10 billion in investments, due to valuation uncertainties and insurance issues related to Greensill Capital, which originated and structured the assets.
So far, about $4.8 billion has been returned to investors, Credit Suisse's update said.
The bank has taken steps including personnel replacements and departures and internal investigations and reviews to address the two issues. It is also engaging with Swiss financial watchdog FINMA — the Swiss Financial Market Supervisory Authority — and other relevant regulators. FINMA has initiated two enforcement proceedings.
The bank is also conducting a strategic review focused on resizing and derisking its prime brokerage and prime financing businesses — those related to the Archegos situation. By the end of this year it plans to reduce leverage exposure to hedge fund clients by at least $35 billion — about one-third of the business, Bloomberg reported.
