Credit Suisse Group AG (NYSE: CS) Tuesday announced the exit of a flurry of top-level executives and indicated a dividend cut due to massive losses from its association with the US hedge fund Archegos Capital Management LP, which failed to respond to margin calls last week.
Furthermore, the Swiss-based bank has taken charge of CHF 4.40 billion (~$4.70 billion) about the Archegos Capital saga. The stock closed at $10.97, up $0.10 or 0.92% from prior close.
Notably, Credit Suisse has stated that it now anticipates a first-quarter pre-tax loss of roughly $960.4 million.
Archegos, a private investment fund run by ex-hedge fund manager Sung Krook “Bill” Hwang, collapsed in the final week of March when its debt-ridden investments on some media firms’ equities were disclosed.
Credit Suisse, Nomura, and few other banks, which operated as a broker of Archegos rushed to liquidate the shares held as collateral and exit the positions.
Hwang, an ex-manager of Tiger Asia, got into a problem after media firm ViacomCBS Inc conducted a stock sale on March 24. As Archegos had a massive exposure to the stock, the decline in the stock price of ViacomCBS triggered margin calls from banks.
Following the failure of Archegos to meet the margin call, Credit Suisse and other banks began liquidating the collateral, which included the stock of Tencent Music Entertainment Group and Baidu Inc, among others.
Even though some banks could quickly liquidate their collateral holdings, Credit Suisse is still left with shares held as collateral. Earlier on Monday, the bank offered 34 million shares of ViacomCBS in the price range of $41 to $42.75 per share.
Furthermore, 14 million American depository receipts of Vipshop Holdings Ltd were offered for $28.50 to $29.50 per share. Also, 11 million shares of Farfetch Ltd were provided for a price of between $47.50 and $49.25 per share.
The stocks above linked to Archegos need to be sold before computing the final losses. ViacomCBS shares, which hit a historical high of $101.97 in March, closed at $42 yesterday. Likewise, Vipshop and Farfetch closed at $29.89 and $49.69, respectively.
Notably, the company’s risk management system is under severe scrutiny. Two vital business relationships have proven wrong in rapid succession, with JPMorgan Chase & Co analysts anticipating the aggregate losses, to sum up to $7.50 billion.
Credit Suisse, which has liquidated over $2 billion worth of stocks to terminate its link with the investor in trouble, has also revealed that the institution’s Chief Risk Officer Lara Warner and investment banking head Brian Chin are exiting the organization.
Just three weeks before British finance firm Greensill went bust. Notably, Credit Suisse had been involved in the marketing of funds that assisted the running of Greensill. Ms.Warner is being scrutinized for the fund’s collapse.
Christian Meissner would take in-charge as the chief of the investment banking division on May 1. Credit Suisse further stated that Joachim Oechslin would act as interim chief risk officer, while Thomas Grotzer would perform interim global head of compliance.
Credit Suisse Chief Executive Thomas Gottstein said, “The significant loss in our Prime Services business relating to the failure of a US-based hedge fund is unacceptable.”
Jason Teh, CIO at Vertium Asset Management (Sydney), believes that Credit Suisse has lost considerable money and its stock price will face difficulty gaining ground.
In the near term, Teh believes that even if Credit Suisse provides all details with clarity, still, the stock has little probability of rallying because the entire episode has affected the earnings. Fundamentally, the bank has lost a source of income, and they need to find another one.
The saga has increased the pressure on Gottstein, who is working hard to push Credit Suisse out from a series of bad news, including a spy scandal that caused the exit of his predecessor Tidjane Thiam and resulted in a $450m loss on an investment in a hedge fund.
Credit Suisse’s news taking charge of $4.70 billion is expected to keep the stock bearish in short- to medium-term.
The historical price chart indicates that the stock is declining after facing resistance at 13. The following support is anticipated only near 8. Additionally, the MACD indicator is in the negative zone. Therefore, we are expecting the stock to remain in a downtrend in the days ahead.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
