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Credit Suisse’s Q1 Trading Gains Wiped Off By Archegos, Reports 252Mn Sfr Loss

Credit Suisse’s Q1 Trading Gains Wiped Off By Archegos, Reports 252Mn Sfr Loss
A multi-billion dollar hit from the collapse of the United States based investment fund Archegos negated the profits made by Credit Suisse from its trading business during the first quarter as the bank reported a 757 million Swiss franc pre-tax loss for the period which was slightly smaller than what had been predicted.
The bank would have made a pre-tax profit of 3.6 billion francs if the 4.4 billion franc charge and other significant items were ignored which would have been the best quarter operationally for the bank in about a decade.
The net loss reported by the bank was of 252 million francs while the bank's own poll of 17 analysts had expected it to report a mean estimate of 815 million francs.
The bank would be issuing notes convertible into 203 million shares to raise capital, the bank said.
"The loss we report this quarter, because of (the U.S.-based hedge fund) matter, is unacceptable," Chief Executive Thomas Gottstein said in a statement. "We expect that our successful MCN placement today will further strengthen our balance sheet and enable us to support the momentum in our core franchise."
Among the larger banks that had investment exposed to Archegos, which collapsed after it could not meet margin calls, Credit Suisse has emerged as the one that has been the hardest hit.
During the second quarter, a residual impact of approximately 600 million Swiss francs because of the hit from the collapsed hedge fund of the US was expected by Credit Suisse, the bank also said. It added that that the bank had already exited about 97 per cent of the related positions.
Currently there are ongoing internal and external probes at the bank while a number of its executives have been forced to exit because of the collapse of Archegos and the collapse of another of the bank’s client, Greensill Capital.
In comparison, profit for the first quarter that beat forecasts were reported by the US rivals Credit Suisse – some of which were much faster in exiting their trading positions even as Archegos collapsed. For example, an increase of almost six fold in its bet income was reported by Goldman Sachs Group Inc. And despite reporting an almost $1 billion loss from the Archegos incident, Morgan Stanley still managed to report a growth in its first quarter profits of 150 per cent.
A growth in earnings of 154 per cent year on year for its business in its Asia-Pacific unit was reported for the first quarter by Credit Suisse which highlighted the strong business environment of the region. It also reported a 25 per cent rise in its pre-tax profit from its Swiss business. However these were the only two divisions that were not affected by the exposure of the bank to Archegos and Greensill.

Christopher J. Mitchell

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