Credit Suisse (CS) Reports a $4.7 Billion Loss from Archegos, Suspends Buyback and Cuts Dividend by Two Thirds

Credit Suisse (NYSE: CS) said today that it is expecting to report a first-quarter pre-tax loss of about CHF900 million ($960.4 million) after the banking giant suffered a CHF4.4 billion ($4.69 billion) hit following the liquidation of the US hedge fund Archegos.

Moreover, the Swiss company has suspended its share buyback program and slashed dividend by two thirds as it weighs heavy losses. The executive board will also waive its full-year 2020 bonuses while Chairman Urs Rohner gave up on his chair fee of CHF1.5 million.

“The significant loss in our Prime Services business relating to the failure of a U.S.-based hedge fund is unacceptable,” CEO Thomas Gottstein said in a trading update.

“Particularly following the significant US-based hedge fund matter, the Board of Directors is amending its proposal on the distribution of dividends and withdrawing its proposals on variable compensation of the Executive Board.”

As a result, the head of the bank’s investment banking division Brian Chin and Chief Risk and Compliance Officer Lara Warner will step down from their roles immediately. Joachim Oechslin has been appointed interim chief risk officer and Thomas Grotzer interim global head of compliance.

The buyback program won’t be reinstated until the bank has regained its target capital ratios and restored its dividend.

“In combination with the recent issues around the supply chain finance funds, I recognize that these cases have caused significant concern amongst all our stakeholders. Together with the Board of Directors, we are fully committed to addressing these situations. Serious lessons will be learned,” CEO Gottstein said in a statement.

Michael Kunz, an analyst at Zuercher Kantonalbank, stresses that the bank had to relieve certain senior executives of their duties following a scandal with Archegos.

“At least - in our opinion - personnel consequences have now been taken. The main damage, however, has been inflicted on shareholders, who have to make do with a lower dividend and a suspended share buyback. In view of the bank’s vulnerability to risk....it does not seem appropriate to us to recommend bets on the securities of CS Group,” he said in a note.

Shares of the company are trading in the green today after dipping nearly 6% early this morning to print the lowest levels recorded since November. Jason Teh, chief investment officer at Vertium Asset Management, believes that buyers will find it difficult to recover recent losses.

“Obviously heads are rolling. After any sort of blow up there’s always tighter control,” he said.

“In the short term, even if all that is declared, (the stock) is not going to go up because you still have to grow earnings. Basically they’ve lost earnings and they won’t get it back until they find another way to get it.”

Credit Suisse was still busy on Monday offloading shares connected to the Archegos hedge fund. It offered 34 million shares of ViacomCBS (NASDAQ: VIAC) priced between $41 to 42.75; 14 million American depository receipts of Vipshop Holdings (NASDAQ: VIPS) between $28.50 and $29.50; and 11 million shares of Farfetch (NASDAQ: FTCH), priced between $47.50 and $49.25 in secondary offerings.

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