The logo of the Swiss bank Credit Suisse is seen at its headquarters in Zurich, Switzerland, March 24, 2021.
Arnd Wiegmann | Reuters
Following rising profit gains from 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 creditor announced earlier this month that it had a $ 4.7 billion success in melting US family hedge fund Archegos Capital and now expects a pre-tax loss of around 900 million Swiss francs ( $ 960.4 million) for the first quarter.
The Archegos saga led to the departure of the bank’s investment bank CEO and chief risk and compliance officer and was preceded by a separate confusion in the asset management division following the collapse of British supply chain finance firm Greensill Capital. Credit Suisse has allocated $ 10 billion in funds related to Greensill.
Several US banks, which also served as primary brokers at Archegos, managed to leave their trading positions after the hedge fund failed to meet margin calls and have since produced some attractive profits in the first quarter. quarter.
Goldman Sachs reported a nearly six-fold increase in net income, while Morgan Stanley’s profit rose 150%, despite a $ 911 million loss from Archegos.
Credit Suisse pointed out that, apart from the Archegos and Greensill saga, it was on the strongest core quarter of a decade in terms of financial performance.
However, investors will look for answers from the bank regarding the degree of exposure to Archegos and Greensill and whether other hits can be expected in the second quarter.
“Unlikely” questions to answer
“Investors are unlikely to have answered all their questions at this stage, especially with regard to Greensill risks, where the group provided regular updates,” Amit Goel, co-head of European research banks, told CNBC on Wednesday. of shares in Barclays. .
“For Archegos, the group may give more color if the entire exposure has been dropped, but if not, it may not disclose the positions / residual risk.”
One can expect a little more detail on the steps management is taking to address the bank’s risk management issues, Goel suggested, including staff changes made amid revisions to investment banking and asset management. in recent weeks.
The bank has launched two independent investigations into both its investment banking and asset management operations following the Archegos and Greensill saga, but a possible reaction from Swiss regulator FINMA will also be on the radar for investors. , according to Morningstar European Banks Equity Analyst Johann Scholtz.
Scholtz also said he would look for evidence that “clear and tangible measures have been taken to improve risk management” and an “indication of the long-term impact on revenues from a recalibration of risk appetite”.
“I expect CS to try to focus the conversation more on good business performance,” he added.
The impact of the franchise
The Financial Times reported last week, citing sources familiar with the bank’s operations, that Credit Suisse made cuts to bonus fundraisers and other one-time bookings, a move some analysts fear could drop employees.
“In terms of the risk of an additional impact on the franchise, we and investors will look to see if the group has taken steps to support earnings and capital in that quarter, which could have a negative impact in the future,” Goel said.
“For example, large reductions in compensation across the IB (investment bank), which seems to be taken into account in the consensus of the sales analyst, highlighted by a much lower cost-revenue ratio for (first quarter of 2021) in OI than in previous periods. “