Credit Suisse takes axe to broking biz after multibillion-dollar losses

Credit Suisse will rein in its investment bankers and plough money into looking after the fortunes of the world’s rich as it tries to curb a freewheeling culture that has cost it billions in a string of scandals.

Announcing the restructuring on Thursday, Chairman Antonio Horta-Osorio, who joined from Lloyds Bank in April to bring the Swiss lender to heel, said he was putting risk management and responsibility at the heart of its operations.

Switzerland’s second-biggest bank will all but stop funding hedge funds by shutting most of its prime brokerage business, a division blamed for racking up $5.5 billion in losses when investment fund Archegos Capital Management defaulted in March.

The long-awaited reorganisation, however, fell short of the sweeping overhaul expected by some investors. 

“It’s rather underwhelming. A bit of reshuffling, of reorganisation here and there, and a few exits,” said Jerome Legras of Axiom Alternative Investments.  Analysts at Citi said it was a “modest restructuring” which relied on growth rather than cutting costs.

To further dampen the mood, the bank posted a 21 per cent fall in third-quarter profit and said it expected a loss in the final three months of 2021 as it writes off some 1.6 billion francs ($1.8 billion) of goodwill related to the investment bank.

Beyond acceptable

The bank’s exit from prime broking cements its demise as a major player in the hedge fund industry. In 2010, it was ranked the second-biggest prime broker in the world, outstripping the likes of US giants JPMorgan and Morgan Stanley.

But a succession of leadership changes and risk oversight branded as “lackadaisical” in an independent review culminated in the Archegos losses that triggered its downfall. 

The trimmed down investment bank will focus on advising firms on deals and listings and trading cash equities. Credit Suisse will also cut back its lending in emerging markets.

The bank said the overall reorganisation would save it 1 billion to 1.5 billion francs by 2024.

Horta-Osorio emphasised the history of a national icon, which was founded to finance the construction of Switzerland’s pan-Alpine railways and has been central to the country’s transformation from a farming nation to financial powerhouse

Spies, lies and losses: the many scandals

Here are some details about the main crises to beset the bank in recent years 

TUNA BOND FRAUD:  Credit Suisse pleaded guilty to defrauding investors over an $850 mn loan to Mozambique meant to pay for a tuna fishing fleet and is paying US and UK regulators $475 mn to settle the case under a deal announced in October.

ARCHEGOS DEFAULT:  Credit Suisse lost $5.5 bn when US family office Archegos Capital Management, founded by Bill Hwang, defaulted in March. The hedge fund’s highly leveraged bets on certain tech stocks backfired. An independent report slammed the bank’s conduct, saying its losses were the result of a fundamental failure of management and control at its prime brokerage division in particular.

GREENSILL FUNDS COLLAPSE: Credit Suisse was forced to freeze $10 bn of supply chain finance funds in March when British financier Greensill Capital collapsed after losing insurance cover for debt issued against its loans to firms. The Swiss bank had sold billions of dollars of Greensill's debt to investors, assuring them in marketing material that the high-yield notes were low risk

SPYING SCANDAL: Credit Suisse CEO Tidjane Thiam was forced to quit in March 2020 after a probe found the bank hired private detectives to spy on its former head of wealth management Iqbal Kahn after he left for arch rival UBS