Credit Suisse Group AG updates
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The implosion of family office Archegos Capital continued to weigh on Credit Suisse’s results as the Swiss bank reported a 78 per cent fall in profits for the second quarter.
The group’s investment bank bore the brunt of the decline, with revenues down by 41 per cent to $1.7bn compared with a year earlier, as its risk appetite reduced following a succession of scandals.
The past six months have been one of the most tumultuous periods in the bank’s 165-year history.
The twin crises surrounding the collapses of niche finance company Greensill Capital and Archegos led to the liquidation of $10bn of investment funds, a $5.5bn loss, a spate of senior executive departures and the threat of legal action from clients.
“We take these two events very seriously and we are determined to learn all the right lessons,” said Thomas Gottstein, Credit Suisse’s chief executive.
“We have significantly reduced our risk-weighted assets and leverage exposure and improved the risk profile of our prime services business in the investment bank, as well as strengthened the overall risk capabilities across the bank.”
Net income for the second quarter fell from SFr1.2bn to SFr253m.
On Thursday, the bank also published a scathing report into its failings over the Archegos losses by law firm Paul Weiss, based on more than 80 interviews and 10m documents. The report highlighted a failure to manage risk effectively in the bank’s prime services division — both by prime brokerage staff and risk managers — although it did not find that either individuals or the bank itself had committed fraud.
In response, Credit Suisse said it was taking several measures to improve its risk management. It added that, after reviewing the roles played by 23 people, it had fired nine members of staff — including the two heads of its prime services business — and imposed $70m of monetary penalties on staff, including clawing back previously-paid bonuses.
Analysts had expected reduced revenue growth for the bank on the back of a decline in risk appetite in response to the scandals. They had also predicted a longer-term decline in earnings following a rash of senior departures and a hit to client confidence.
Credit Suisse’s operating expenses fell 1 per cent year on year, which the bank said was mainly due to the cuts to staff bonuses following the fallout from Archegos and Greensill.
The $5.5bn loss stemming from the collapse of former hedge fund manager Bill Hwang’s Archegos has been especially embarrassing for Credit Suisse as the FT reported that the bank made just $17.5m from the relationship last year, despite extending billions of dollars of credit to the family office.
Since former Lloyds Banking Group chief executive António Horta-Osório joined as chair three months ago promising a wholesale review of risk management, strategy and culture at the bank, Credit Suisse has already started bolstering its risk management procedures.