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Credit Suisse shares under severe selling pressure as Finma turns up heat

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Remember Credit Suisse and Archegos? The Swiss bank at the centre of the storm has today reported a net loss of SFr252m in the first quarter, reflecting a Sfr4.4bn charge taken because of what it coyly describes as “the US-based hedge fund matter”.

There is another CHF 0.6bn exposure but the bank has now exited 97% of positions. Credit Suisse also announced it will raise capital to repair the balance sheet, issuing Sfr1.7bn in convertible notes to return the CET ratio to 13%.

This might help assuage regulators a little. Separately, Swiss financial regulator Finma said today it has opened enforcement proceedings against Credit Suisse in relation to the Archegos affair and ‘possible shortcomings in risk management’, having already commenced an investigation into Credit Suisse’s dealings with the failed Greensill Capital. CEO Thomas Gottstein said there is no problem with the bank’s risk culture.

“Rather like putting a decent round of golf together, it only takes one out-of-bounds and a three-putt to ruin the card,” said senior markets analyst Neil Wilson at Markets.com. “Credit Suisse was actually doing quite well before it all blew up. The underlying business results were rather good, with adjusted net revenues excluding significant items and the Archegos bill rising 35% year-on-year to Sfr7.4 bn, and income ex-nasties up 280% to Sfr3.6bn.”

Credit Suisse stock smashed in early trading

Credit Suisse shares were down 4-5% in early trade taking it to the bottom of the Stoxx 600. Credit Suisse has found itself out of bounds several times lately – time to go back for some pro lessons.

Credit Suisse seems to be stuck in a severe bad news cycle that stems from its backing of bets made by hedge fund turned family office Archegos. Credit Suisse shares on Switzerland’s SWX have been heading steadily south, with seemingly no end in sight. Stock was off a near term peak of CHF 13.38 going into the Archegos saga and at time of writing was trading just under nine francs in Switzerland. It does not paint a pretty picture.


Greensill investigation may turn up further nasties for Credit Suisse

Credit Suisse is seemingly exposed to more than just Archegos as the Greensill investigation is likely to drag on and dig up all kinds of interesting revelations in the German lending side of things. Credit Suisse has been forced to cut its dividend and suspend share buy backs.

All this comes as other investment banks are seemingly doing well. Credit Suisse should be in much better shape, and had been looking forward to one of its strongest quarters in a decade. Replacing its head of investment banking and its chief risk officer may not be enough to satisfy either regulators or indeed investors.

In our experience of investment banking – and it stretches back a bit now – follies like this cannot be attributed to individuals; there are cultural questions within the bank to be answered as well. We anticipate more bad news for Credit Suisse ahead, and while much of the impact has been priced into the share price, we don’t anticipate an upswing anytime soon. If you are looking for an investment bank to invest in, you may want to look elsewhere.

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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