Credit Suisse to raise capital as it recovers from Archegos losses

Credit Suisse has announced a capital increase of 1.7 billion francs ($ 1.9 billion) because it includes the cost of the consecutive crises involving Archegos Capital and Greensill Capital that the Swiss financial regulator is investigating.

The Swiss lender said Thursday it had placed 203 million convertible notes with existing shareholders in a bid to increase its Tier 1 common stock ratio from 12.2% to 13%.

Credit Suisse is reeling from its biggest business loss in more than a decade at the Archegos family office last month, which came just weeks after it was forced to suspend $ 10 billion in funding funds from the supply chain linked to Greensill.

Separately, Finma, the Swiss financial regulator, announced on Thursday that it had opened enforcement proceedings against Credit Suisse over potential risk management loopholes in its relationship with Archegos.

The regulator previously opened an investigation into Credit Suisse’s Greensill losses.

“As a result of these two cases, Finma has in recent weeks ordered the implementation of various short-term measures,” said the watchdog.

“These include organizational and risk reduction measures and capital surcharges as well as reductions or suspensions of variable compensation elements. These precautionary and temporary measures aim to supplement and strengthen the measures already taken by the bank. “

The move comes as Switzerland’s second-largest asset bank reported a loss of 757 million francs ($ 825 million) in the first quarter, after previously warning that pre-tax losses could reach 900 million francs.

The bank reportedly reported its best quarter in at least a decade thanks to a 31% year-over-year increase in revenue, but was forced to write off CHF 4.4 billion on Archegos-related losses Capital.

“The loss we are reporting this quarter, because of this issue, is unacceptable,” said Thomas Gottstein, Managing Director of Credit Suisse. “Together with the Board of Directors, we have taken important steps to address this situation, as well as the importance of supply chain finance funds.”

The bank also said it had settled two long-standing US mortgage bond lawsuits for $ 500 million, after previously warning claims reached $ 1.3 billion.

Credit Suisse has been hit by the double crisis surrounding Greensill and Archegos over the past two months.

The bank’s share price has fallen 30% since March 1, when it froze the group of supply chain finance funds linked to Greensill. Credit Suisse executives estimated that clients who invested in the funds could lose up to $ 3 billion after several companies that owed the funds money indicated they were unable or unwilling to did not want to pay.

Weeks later, Credit Suisse was one of the global banks hit by the implosion of their client Archegos, the family office run by former hedge fund manager Bill Hwang.

The Swiss lender subsequently amortized $ 4.7 billion on the Archegos collapse – its biggest commercial loss in at least a decade.

The double debacle sparked regulatory investigations in several countries, while Credit Suisse’s board of directors launched its own internal investigations. The bank also announced a series of senior and middle management departures in recent weeks, including Lara Warner, head of risk and compliance, and Brian Chin, head of investment banking.

Outgoing Lloyds Banking Group chief executive António Horta-Osório is due to be confirmed as Credit Suisse’s new chairman at the bank’s annual general meeting next Thursday.

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