Credit Suisse was dealt another blow on the heels of massive losses from the Greensill collapse, sparking worries about the potential scale of the fallout.
The Swiss bank warned of “highly significant and material” losses over the sale of around $20bn in US and Chinese stocks, after hedge fund Archegos Capital Management, the family office of hedge fund manager Bill Hwang, unwound a clutch of assets in a fire sale.
“Coming so soon after the Greensill fiasco, you have to wonder about what this says about Credit Suisse risk management, if it can be saddled with such heavy losses from one fund,” said Neil Wilson, chief markets analyst at Markets.com. People close to the Swiss bank told the Financial Times that losses could be between $3bn to $4bn. The stock plunged 16% on 29 March.
Credit Suisse, which told the FT it is “premature” to speculate on losses, was contacted for comment for this story.
It’s been a rough period for Credit Suisse. Earlier this month, the bank wound up funds with $10bn linked to collapsed supply chain finance firm Greensill Capital. More than 1,000 trapped investors are preparing to take legal action, the FT reported, while just over $3bn has been returned to investors. And last year, before the unraveling of Wirecard, Credit Suisse advised Softbank in setting up a $1bn lifeline of convertible bonds to the German payments company, which crashed after Wirecard’s eventual collapse.
“The fear among some investors is that this is not an isolated incident,” Daniel Regli, banking analyst at Octavian, said of the Archegos losses. “Credit Suisse has been at the centre of a lot of recent incidents.”
Those incidents may even trigger an overhaul of the company’s structure. Chief executive Thomas Gottstein, who took over as Credit Suisse CEO in February last year, told Bloomberg Television on 22 March that he might decide to spin off the bank’s asset management arm.
John Hempton, who co-founded Bronte Capital Management, told Bloomberg earlier this month that he is short Credit Suisse because of the Swiss lender’s exposure to Greensill. In a blog post on 22 March, Hempton said the bank may be downplaying its Greensill exposure.
“Credit Suisse are talking down the issue, telling us Greensill is but a scratch,” wrote Hempton, who shot to fame with bearish bets against pharma company Valeant and Wirecard. He said of the potential spin-off: “For this to the rational course of action, or even an action that warrants considering, the Greensill problem must be big. Really big.”
Nomura also warned of losses resulting from a large hedge fund client, while Goldman Sachs, Morgan Stanley and Deutsche Bank are also among banks that reportedly supplied prime brokerage services to Archegos.
Added Regli: “Local investors fall into two camps — those who see the recent litigation and reputational issues as a reason to stay away from big bank stocks, and those who have not turned their backs on big banks, but see recent issues as an echo of the 2007 financial crisis. In the back of their minds, there’s an indication that banks might run into a second financial crisis after the health crisis.”