Credit Suisse weighs in to replace the head of risk in an impending executive future

Leaders of Credit Suisse Group AG are discussing the relief of risk general manager Lara Warner while saving CEO Thomas Gottstein, as they explain the losses that could reach billions after the collapse of Archegos Capital Management, according to inform people about it.

The bank is expected to brief investors on the consequences of Archegos, including the fate of top executives such as investment bank chief Brian Chin, two of the people said. They also said the Swiss firm is planning a overhaul of its main brokerage business, which is in the investment bank.

“I think it’s unfair at this stage to put that on Mr. Gottstein,” David Herro of Harris Associates, one of the bank’s major shareholders, said in an interview with Bloomberg TV last week. “He tried and has tried to reorganize Credit Suisse, but Rome was not built in a day. Unless we see evidence to the contrary, I think he is the right person to continue running the organization.”

A Credit Suisse spokesman declined to comment.

Read more: How Credit Suisse prepares for impressive losses that are likely to run into billions

According to analysts at JPMorgan Chase & Co., the No. 2 Swiss bank is one of the biggest potential losers in the collapse in Archegos, which could cost banks $ 10 billion collectively. This happened a few weeks after the collapse of Greensill Capital, a lender that managed funds that Credit Suisse offered to its asset management clients.

The blow of two has made Credit Suisse the world’s largest bank share in the worst performance so far this year, as a strong start to its investment banking business was overshadowed by the exposure of the bank in Greensill and Archegos, a family office based in New York. .

The bank’s share buyback program of 1.5 billion Swiss francs ($ 1.6 billion) runs the risk of being stopped for the second time (after being stopped for the first time at the start of the pandemic last year) and losses could put pressure on dividend payments. S&P Global Ratings downgraded its outlook for the bank from negative to stable to risk management concerns.

A success in profits in excess of $ 5 billion would begin to put pressure on Credit Suisse’s capital position, according to JPMorgan. Swiss regulator FINMA has increased Credit Suisse’s requirements in relation to its second pillar interim report, after the bank warned it could cause a loss due to the liquidation of supply chain financing funds linked to Greensill.

These are the leaders of Credit Suisse who will be the center of action in the coming days and weeks:

Thomas Gottstein, CEO

The surprise choice to take over in February 2020, following an espionage scandal that ousted Tidjane Thiam, Gottstein previously led the bank’s business in Switzerland. When he got the job, he declared it was “time to look ahead,” but Credit Suisse’s problems have only metastasized since then.

First there was a $ 450 million reduction in the bank’s stake in the York Capital hedge fund and the costs associated with a long-standing legal case in residential mortgage-backed securities.

Then the Greensill supply chain financing business exploded. The board of directors and regulators are studying how Credit Suisse’s supply chain financing funds, linked to Greensill’s business, were sold to investors, including its own wealth management clients, and how the bank managed the conflicts of interest and its business relationship with Greensill, Bloomberg News reported.

The Archegos episode raises questions about his risk management, especially because one of his first major initiatives was to merge risk and compliance divisions to streamline and improve risk decision-making.

“Risk controls are still not where they should be,” Herro said. “We hope this is a wake-up call to accelerate the cultural change needed in this company.”

Lara Warner, head of risk and responsible for compliance

With dual Australian-American nationality and a career ranging from equity analyst to investment bank chief financial officer, Warner has taken a less traditional route than many of its peers to the highest levels of investment. risk management and the executive board of Credit Suisse. She was the highest profile member of Thiam’s inner circle to win a place in the Gottstein front rows. Its promotion to head of risk and compliance came to the remodeling that saw the two units combined.

He faces some of the same difficult questions Gottstein asked about risk management practices and culture after his personal involvement in signing a loan with Lex Greensill in October.

In a banking area run primarily by men with a risk model, their more business-focused approach has not always gone down well, according to conversations with about half a dozen current and former employees who spoke on condition of anonymity. Several left after she took over, while those who remained were challenged to commit more to the business, according to the people who worked with her.

“In order for the good chunks of Credit Suisse to flourish, you have to get rid of the bad chunks and that is the risk control that this company has suffered for most of a decade,” Herro said.

Brian Chin, CEO of the investment bank

Along with Warner, Chin was a big winner in the Gottstein shake last summer, when the chief negotiator also gained control of the investment bank after a merger of the two units.

Its promotion, at least in part, was due to a change of fortune in world markets during the latter part of the Thiam era. Now, his business is under intense pressure due to the losses of Archegos.

Emissaries from several of the world’s top major corridors tried to avert chaos before the drama went public last Friday. The idea of ​​Credit Suisse was to reach a kind of stop to find out how to relax positions without causing panic, according to people who are aware of it.

This strategy failed, causing banks to start selling. Credit Suisse and Nomura issued profit notices on Monday. Later, Gottstein and Chin made a call with CEOs and other executives where they said the lender was still working to find out the size of the success and told bankers it was time to meet and not focus. be in the potential impact on salary.

Paul Galietto, head of equity trading

Galietto joined Credit Suisse in 2017 after a stint at UBS Group AG and a two-decade career at Merrill Lynch & Co. He headed Credit Suisse’s main brokerage unit before coming to lead the equity trading division two years ago.