Finance

Credit Suisse under regulatory scrutiny over Archegos

Regulators in Switzerland and the US asked Credit Suisse for more information in recent days about additional stock sales related to the collapse of Archegos Capital Management, according to people familiar with the matter.

The sales could result in additional losses that go beyond the $4.7bn hit the bank disclosed earlier this month, one of the people added, and any additional losses are expected to be small in relation to the earlier amount.

Since disclosing the loss, Credit Suisse has looked to unload roughly $4bn in stock tied to Archegos, including a sale as recently as last week, according to people familiar with the trades. Regulators asked Credit Suisse for information about the sales and any potential losses, the people said, and how the bank is managing its exposure to Archegos.

A Credit Suisse spokesman declined to comment.

The recent regulator questions are part of a broader investigation into the bank’s relationship with Archegos and its wind down, one of the people added.

It couldn’t be determined which US regulators were asking questions about the most recent stock sales. The Securities and Exchange Commission launched a probe into Archegos trading in March, The Wall Street Journal reported earlier.

The Federal Reserve is examining the Archegos situation and working with overseas regulators, “to make sure it doesn’t happen again,” Federal Reserve Chairman Jerome Powell said in a “60 Minutes” interview earlier this month. The Senate Banking Committee wrote to Credit Suisse and other banks this month seeking information on their business with Archegos.

Swiss regulator Finma said in late March it was in touch with Credit Suisse. The UK’s Financial Conduct Authority and Prudential Regulation Authority are also monitoring the situation.

JPMorgan Chase analysts in a research note on 16 April estimated there could be another $400m in charges from the recent sales, depending on how Credit Suisse calculated the earlier figure, and that they believe Credit Suisse needs to “draw a line under this issue and the final scale of charges it could take on Archegos.”

Credit Suisse is expected to give an update when it reports first-quarter earnings on 22 April. It previously said its pretax loss for the quarter should be around $1bn because of the $4.7bn charge.

Bloomberg News reported earlier about the additional stock sales and the potential for additional losses.

The Swiss bank has been the hardest hit among lenders from the hedge fund’s meltdown. Archegos, a US family investment firm, took huge bets on a few stocks with money borrowed from banks. When some rising positions reversed and Archegos couldn’t meet margin calls, it triggered one of the biggest sudden losses in Wall Street history. Other banks including Nomura Holdings Inc. and Morgan Stanley also reported large losses.

The unravelling of Archegos highlighted the dangers when banks lend to hedge funds, and how risks are managed. Credit Suisse lent more to Archegos relative to its size than other lending banks, The Wall Street Journal previously reported.

The fund’s problems came only weeks after the collapse of another Credit Suisse client, Greensill Capital, with which the bank ran a $10 billion set of investment funds. Credit Suisse says costs related to those funds and a loan to Greensill could be material but hasn’t given a figure.

In its annual report last month, Credit Suisse said regulators had started or were considering investigations and actions, and that its main regulator, Finma, asked it to increase a capital buffer related to Greensill.

After disclosing the $4.7bn loss from Archegos on April 6, Credit Suisse slashed its dividend to conserve capital and Chief Executive Thomas Gottstein said: “serious lessons will be learned.” The bank pushed out its top risk manager and the head of its investment bank, and several more employees working in equities and risk management.

—Julie Steinberg contributed to this article.

Write to Emily Glazer at [email protected] and Margot Patrick at [email protected]

This article was published by Dow Jones NEWSPLUS

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