Credit Suisse Group (NYSE:CS) revealed last week that it could incur heavy losses following the US hedge fund Arhegos Capital’s meltdown. As a result, the company reported several high-level departures and has proposed dividend cuts as it considers the heavy losses from the saga.
Archegos Capital saga cost Credit Suisse $4.7 billion charge
Archegos Capital’s collapse costs the Swiss lender almost $4.7 billion, and the bank has now said that in Q1 2021, it expects a pre-tax loss of $939 million after taking a charge in respect to the hedge fund’s collapse. Thomas Gottstein, Swiss Cruise’s CEO, said that the massive loss in the company’s Prime Services operations relating to Archegos Capital’s failure is unacceptable. He said that there are serious lessons to learn from the saga, and the bank is still a formidable institution with a rich history.
The bank said that following the meltdown, Chief Risk Officer Lara Warner and Investment Bank executive Brian Chin will leave their executive roles effective immediately. Also, other executive board members are unlikely to receive bonuses this year, with Board chairman Urs Rohner giving up $1.6 million in compensation as well. The Swiss bank also indicated that it is slashing dividends and suspending share repurchases. Following the collapse of the hedge fund, Credit Suisse was forced to dump a large amount of stock and cut ties with the beleaguered family office.
Credit Suisse suspends share repurchases and cuts dividends
Credit Suisse will propose a 0.1 Swiss francs dividend per share during its annual general meeting on April 30, 2021, alongside the adjusted compensation report. The banks said that following the significant Archergos Capital scandal, the Board of Directors is adjusting its dividends distribution proposals and withdrawing variable compensation for executive members. The company suspended the shares repurchase program stating that it will not resume share buybacks until it regains target capital ratios and restores dividends.
The saga involved Archegos using borrowed money to create massive stock positions on companies such as Discovery Communications Inc. (NASDAQ:DISCA) and ViacomCBS Inc. (NASDAQ:VIACA) and was unable to pay back lenders after share prices had dropped. The hedge funds’ collapse has elicited calls for enhanced regulation of companies investing on behalf of small clients or families.
Credit Suisse faced another scandal in March
Unfortunately, this is a second major implosion for the Swiss bank in recent weeks. Last month the bank froze $10 billion related to Greensill Capital, which had offered cash advance to firms-owed money by clients. Credit Suisse’s reputation has been damaged through an accounting scandal at Luckin Coffee, considering it was an underwriter when the firm listed on the Nasdaq two years ago. The Chinese company was suspended from the US exchange in 2020 after it inflated sales.
The bank has launched probes into the Archegos and Greensill saga through third parties. The company has vowed to focus on issues emanating from the scandals and consider lessons and consequences learned.