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Archegos turns it into a trifecta of Credit Suisse’s disadvantages

Archegos turns it into a trifecta of Credit Suisse’s disadvantages


By definition banking involves risk. If you lend money to people and businesses, some of them won’t be able to repay it. The difference between good and bad banking lies in how you manage that risk.

Too prudent bankers starve the economy of the funds needed to fuel trade and growth, and they don’t make a profit. Those who throw money at the wrong people at the wrong time can have serious problems.

This brings us to Credit Suisse. This month it became the second largest bank in Switzerland badly entangled With the fall of the Greensill Capital financial group. Now, it looks like he will be the biggest loser Capital Management Archives. Credit Suisse shares fell about 16 percent on Monday from its losses “very significant“.

So much for the swearing-in of CEO Thomas Gottstein in 2021. “clean slate”After the bank was shaken by some scandals in 2020, it was about former customer Luckin Coffee involved in fraud.

In fact, Archegos captured several large banks. Even though founder Bill Hwang’s Tiger Asia Management hedge fund was accused of fraud in 2012, investment banks competed to extend the Archegos. Credit of more than $ 50 billion, which are huge and non-public positions, which he used to form a small number of stocks.

When the prices of some of these companies began to fall, the banks tried to dissolve their positions. Nomura and Credit Suisse seem to have taken the most serious damage. The Bank of Japan has approved a A $ 2 billion claim and the Financial Times reported reports of losses to Credit Suisse Between $ 3 thousand and $ 4 thousand, much more than anyone has revealed.

However, there is one common thread during Credit Suisse’s recent clashes: highly concentrated exposure to each client or company, or both. We are still learning the details of Archegos, but the bank has had to give him the opportunity to lose tremendous positions so quickly.

Prior to the bankruptcy of Luckin Coffee, Credit Suisse described its CEO as “:the customer of dreams”He took the private bank, loans and its share offer into contact. Also, with Lex Greensill, the bank explained itself in at least three ways: it was a private bank customer, the team got it Last year a $ 140 million bridge loan and, most detrimentally, it needs the credit management division of Credit Suisse $ 10 billion in supply chain financing funds assets supplied from Greensill.

Interiors say the trifecta was created as a result of long-term cultural and structural problems that have exacerbated recent efforts to bring jazz results. Last year, Credit Suiss’s return on tangible assets stood at 6.6%, nearly half that of its rivals UBS and the US. Gottstein told investors in December that he wanted to raise that from 10 percent to 12 percent. But the bank’s shares traded at a significant discount with its European counterparts even before this week’s fall.

Most of the world’s largest banks operate with matrix models: businesses are divided into functional groups and also have guidelines for regional reporting. Credit Suisse has repeatedly reshaped its structures in Gottstein last July throw back the changes made by his predecessors. In addition, Swiss and Asian businesses are separated from functional divisions. “Everything is silenced in this Byzantine arrangement. They call it experimental. I call it chaotic, ”says a senior banker.

The bank has made a great effort to keep up with the large customers involved in several different businesses at the same time. He wanted to tackle the July reorganization by combining risk and compliance and creating a committee to look after these large clients in particular. But it was also explained that the changes have “high potential efficiency” and cost savings. If they could improve risk management, the benefits so far are not obvious.

The lack of a holistic approach and pressure to increase revenue has led front-line managers to accept specific transactions, rather than asking if the bank should do so much business with a particular customer. Insiders also complained that the changes made by post-Greensill staff in asset management bring little fresh blood: the new head is returning from UBS to the bank and has moved his predecessors to another area.

Finma, the Swiss regulator, was already worried enough that Greensill would ask the bank to have additional capital for unforeseen risks. But that cannot be the only answer. Credit Suisse will never be at risk. All Gottstein has to do is make sure the risks the bank has are adequate.

brooke.masters@ft.com

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