Archegos, Greensil busts force Credit Suisse board member to quit

Credit Suisse’s new chairman pledged Friday to tackle risk at the bank as a board member was pushed out following major losses linked to the collapses of two financial firms.

by Nathalie OLOF-ORS

Switzerland’s second largest bank has been under pressure from shareholder groups to clean up its act after being hit hard by bankruptcies at Archegos, a US hedge fund, and British financial firm Greensill.

“The current and potential risks of Credit Suisse need to be a matter of immediate and close scrutiny,” Antonio Horta-Osorio, the former chief of British bank Lloyds, told the Swiss bank’s general assembly.

“I firmly believe that any banker should be at heart a risk manager,” he said shortly after receiving 96.45-percent backing to replace long-time chairman Urs Rohner.

Shockwaves rippled through global financial markets and institutions last month when then little-known Archegos sold at least $20 billion in stocks as it sought to cover obligations to its lenders.

Losses at leading global banks have jumped past $10 billion, with Credit Suisse accounting for around half of the damage.

Credit Suisse had also invested heavily in Greensill, a firm specialised in short-term corporate loans via a complex and opaque business model, and was forced to suspend four funds after the firm declared insolvency last month.

– ‘Tough period’ ahead –

“A tough period and hard discussions lay ahead of us,” Horta-Osorio acknowledged.

Fears abound that the massive losses will take a heavy toll on Credit Suisse’s reputation, which was just beginning to mend after a massive scandal over espionage against former employees pushed former chief Tidjane Thiam to resign early last year.

In an apparent bid to repair some of the damage, Credit Suisse announced earlier Friday that Andreas Gottschling, the head of the board’s risk committee, would not seek re-election.

One of Switzerland’s top shareholders associations, Actares, had opposed Gottschling’s re-election to the risk committee, and had demanded that Credit Suisse change its corporate culture in the wake of the financial fiascos.

“The example of the Greensill case shows that Credit Suisse apparently hasn’t learned to manage complex risks for such an important client,” it said in a statement earlier this month.

Credit Suisse’s investment banking chief Brian Chin and its head of risk compliance Lara Warner were also pushed out earlier this month.

Horta-Osorio’s arrival could signal the end of a troubled era.

Rohner’s decade-long tenure was marked by several large crises, including the recent spying scandal and multi-billion-dollar settlements with US authorities over the bank’s role in the US subprime debacle and for helping US citizens avoid US taxes.

Back when Rohner took over in 2011, shareholder group Ethos had warned that Credit Suisse’s commercial banking division was “too small to compete with the American banks” and should be sold rather than encouraged to continue taking risks.

But while Credit Suisse bosses clipped the unit’s wings, they did not get rid of it completely, and Rohner has taken heat for allowing the current crisis to unfold.

– $5.5 billion hit –

The bank, which is losing $5.5 billion to cover damage related to Archegos across the first and second quarters, plans to issue new shares to reinforce its capital base.

Swiss rival UBS was also hit, but not as badly, booking losses of $774 million related to Archegos.

US family-owned hedge fund Archegos, run by former Tiger Asia director Bill Hwang, had taken huge bets on a few stocks with money borrowed from banks.

When several of those bets turned sour, the fund was unable to meet “margin calls” — when the banks demand extra cash or assets to cover losses in a brokerage account.

In an interview published by the NZZ daily Friday, UBS chief Ralph Hamers acknowledged that the industry “should not have accepted the lack of transparency” in the Archegos portfolio.

“There was a concentration of risk,” he said, adding that all the exposed parties reacted at the same time, causing “an extreme reaction in stock prices.”

UBS worked hard to mitigate risks but “unfortunately incidents cannot be completely eliminated,” he said, urging more regulatory intervention to avoid an Archegos repeat.

Greensill’s implosion, meanwhile, threatens about 50,000 jobs at companies that relied on its supply chain financing, including the steel empire of Indian-British billionaire Sanjeev Gupta. © Agence France-Presse

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