Can accident-prone Credit Suisse ever turn the corner?

Swiss banking giant Credit Suisse is scrambling to minimise its reputational damage after being embroiled in two of the most contentious events that have recently rocked global financial markets: the collapse of Greensill Capital, and the blow-up of family office Archegos Capital.

The bank recently revealed that it had made a $275m loss in its first quarter. It had been expected to make a solid profit as recently as last month, but that was before the Archegos collapse. Chief executive Thomas Gottstein said that, Archegos aside, it was “one of our best quarters in the history of Credit Suisse.”

Investors begged to disagree – the share price slid by 5% on the results and is down about 17% this year, and around 30% since the start of March, which is when its Greensill-related problems came to light (more on that in a moment). The company has also had to raise more capital – about $1.9bn – via issuing convertible notes.

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Credit Suisse was one of several banks which had exposure to the fund run by former Tiger Asia Manager Bill Hwang. But Credit Suisse was among the hardest-hit when Archegos defaulted on a huge margin call, prompting a selling spree in several technology and media stocks.

The Swiss lender separately revealed last month that it is overhauling its asset management business after investigations into the bank’s dealings with Greensill Capital, the scandal-ridden supply chain financial services company, with links to former UK prime minister David Cameron, which filed for insolvency last month.

Why is the bank associated with Archegos and Greensill Capital?

What has Credit Suisse got to do with Greensill? The Swiss lender was a key source of funding for the supply-chain finance company. Credit Suisse bought about $10bn-worth of securitised loans from Greensill. Investors then bought the funds. The bank also lent $140m to Greensill in 2020.

The Swiss bank had to suspend the funds on 1 March after Greensill lost insurance coverage on the loans it had made. This in turn triggered Greensill’s collapse into administration.

The bank has repaid about $5.4bn to investors, and is due to hand out a second payment to investors exposed to the funds, but it predicts $2.3bn is still at risk (although at least some if not all of this will be borne by the fund investors).

Credit Suisse is slashing the bonuses of its most senior directors as well as cutting its dividend by two-thirds. At least seven senior executives have left the bank, including the investment bank’s chief risk and compliance officer, Lara Warner.

While these latest blow-ups are certainly embarrassing, Credit Suisse hasn’t exactly covered itself in glory in recent years. A little more than a year ago, former chief executive Tjiane Thiam was ousted due to a high-profile espionage scandal. Gottstein replaced him as CEO, but may be regretting it now.

The bank has been associated with a number of controversial clients including Luckin Coffee, a Chinese coffee chain that filed for bankruptcy in February after an accounting scandal hit last year. That’s not to mention scandal-hit German fintech Wirecard.

Credit Suisse also had to write down $450m on an investment in hedge fund York Capital and the bank has also been sued by Mozambique due to its alleged role in a $2bn “tuna bond scandal – a scandal involving $2bn-worth of bank loans and bond issues issued to secret Mozambique state-owned firms.

How will the scandals affect Credit Suisse?

It has not always been doom and gloom. Brady Dougan, who served as the Swiss bank’s CEO until 2015, has long pointed out that the Swiss lender survived the 2008 financial crisis without a government bailout. And the appointment of Antonio Horta-Osorio, the current chief executive of Lloyds Banking Group as chairman, may help the bank to turn around.

But given past and ongoing scandals, Osorio faces a herculean task in transforming the bank’s image.

As Christian Hunt, founder of Human Risk and the former COO of Prudential Regulation Authority (a subsidiary of the Bank of England), notes about the Archegos losses: “Banks are designed to take risk, but to lose billions on one client is frankly astonishing. It just shouldn’t happen,” he tells City AM. “What’s particularly worrying is that this type of error has plenty of precedents that should’ve served as a warning.”