The logo of the Swiss bank Credit Suisse can be seen at its headquarters in Zurich, Switzerland, on March 24, 2021.
Arnd Wiegmann | Reuters
Following the boom in profits of its Wall Street rivals, Credit Suisse is expected to report a significant loss on Thursday as it navigates the aftermath of two high-profile crises.
The Swiss lender announced earlier this month that it had made $ 4.7 billion in success from the fall of U.S. family hedge fund Archegos Capital and now expects a pre-tax loss of about $ 900 million. Swiss francs ($ 960.4 million) for the first quarter.
The Archegos saga led to the departure of the CEO and CEO of the bank’s investment bank, and was preceded by a separate shake-up in the asset management division following the collapse of the British supply chain financing firm Greensill Capital. Credit Suisse invested $ 10 billion in funds tied to Greensill.
Several US banks, which also acted as Archegos’ main intermediaries, managed to get out of their trading positions after the hedge fund was unable to meet margin calls and have since made impressive gains. of the first quarter profit.
Goldman Sachs reported a nearly six-fold increase in net income, while Morgan Stanley’s profits rose 150%, although Archegos lost $ 911 million.
Credit Suisse noted that, apart from the Archegos and Greensill sagas, it was in the course of the underlying quarter strongest for a decade in terms of financial performance.
However, investors will look for answers from the bank as to its exposure to Archegos and Greensill and whether more successes can be expected in the second quarter.
“Unlikely” questions to be answered
“Investors are unlikely to have all their questions answered at this stage, particularly with regard to Greensill’s risks, where the group has been providing periodic updates,” Amit Goel, co-head of CNBC, told CNBC on Wednesday. equity research of European Barclays banks. .
“For Archegos, the group may give more color if the entire exposure has been abandoned, but if not, they may not disclose the residual positions / risk.”
One can expect a little more detail about the steps management is taking to address risk management issues at the bank, Goel suggested, including changes in staffing made in reviews of investment banking and investment management companies. ‘active in recent weeks.
The bank has launched two independent investigations into its investment banking and asset management operations following the Archegos and Greensill sagas, but the possible reaction from Swiss regulator FINMA will also be on investors’ radar, according to the Morningstar European Banks equity analyst Johann Scholtz.
Scholtz also said he would be looking for evidence that “clear and tangible measures have been taken to improve risk management” and an “indication of what the long-term impact on revenue from a recalibration of the appetite for risk “.
“I anticipate that CS will try to steer the conversation toward good underlying business performance,” he added.
Impact of franchises
The Financial Times reported last week, citing sources familiar with the bank’s operations, that Credit Suisse had reduced accumulations of bonuses and other reserved items only, a move some analysts fear could disallow employees.
“On the risk of a new impact of the franchise, we and investors will look to see if the group has taken steps to support profits and capital in the quarter, which could have a negative impact in the future,” said Goel.
For example, large cuts in the compensation of the IB (investment bank), which seems to be taken into account in the consensus of sales analysts, evidenced by a much lower cost-to-income ratio in the first quarter of 2021) in the IB than in previous periods. “