Credit Suisse seen halting $1.6bn buyback and kicking off restructuring amid Archegos fallout

The fallout from the Archegos Capital Management fire sale could force Credit Suisse to suspend its planned $1.6bn share buyback programme and push through a fresh round of restructuring, analysts warn.

The Swiss bank says it sees  “highly significant and material” losses from the sale of around $20bn worth of stocks by the family office of hedge fund manager Bill Hwang. The blow comes on the heels of its ties with collapsed supply chain finance firm Greensill Capital and a $450m hit from the closure of hedge fund York Capital.

The fallout from Archegos could leave the Swiss bank on the hook for up to $4bn, the Financial Times has reported, in addition to potential losses around around $1bn to 1.5bn on losses related to Greensill.

Goldman Sachs analysts said in a 30 March note that the Archegos announcements will “put pressure on the operating performance of the bank in 2021”. Goldman cut the Swiss bank’s return on tangible equity target, a key measure of profitability, by 9.4% over the next year to CHF14.50.

READ‘You have to wonder what this says about Credit Suisse risk management’

“We see the potential for CS reassessing its operating approach in select areas as typically these type of situations are accompanied by reduced risk appetite, higher hurdles for new business and restructuring,” it said. “For each $1bn of trading loss, our CS net income estimate for 2021, pre trading loss, would be impacted by about -20%.”

“The hits just keep coming for Credit Suisse,” added Berenberg analyst Eoin Mullany in a 30 March note.

A Credit Suisse spokesman declined to comment.

Both Berenberg and Citigroup analyst Andrew Coombes have warned that the Swiss bank could suspend its plans to buyback CHF1.5bn ($1.6bn) in shares. Credit Suisse outlined the plans in January, following a pandemic-induced suspension for nearly a year.

“To date, CHF274m has been completed and this has continued post the Greensill fallout,” wrote Coombes. “We now see a strong probability that the remainder of the buyback is suspended.”

“CS will need to suspend its share buyback, while in the longer term we believe it will lead to CS reassessing the way it takes and manages risk,” added Mullany.

READ Credit Suisse asset management spinoff would do little to ease Greensill ‘reputational damage’

Credit Suisse faces potentially the biggest loss of any investment bank. Nomura warned that it faced up to $2bn in losses from a hedge fund client in its US subsidiary. Both Goldman Sachs and Deutsche Bank have signalled that any losses related to Archegos are likely to be immaterial.

“We think lessons will need to be learned and communicated in order for the market to have confidence that similar events won’t recur in future,” said Citi’s Coombes on Credit Suisse.

To contact the author of this story with feedback or news, email Paul Clarke

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