Credit Suisse moves to boosts capital ahead of Archegos hit

Credit Suisse (CSGN.S) will raise over $2 billion to strengthen its capital base after flagging a further hit from the collapse of U.S. investment fund Archegos and as Swiss regulators took action against the bank over the multi-billion dollar debacle.

The demise of Archegos and another major client, British finance firm Greensill, triggered losses, sackings and bonus cuts at Credit Suisse at a time when rivals are revelling in bumper profit from trading and dealmaking. Its prime brokerage unit, which funded Archegos' stock bets, will be shrunk.

Credit Suisse said it expects a hit of about 600 million Swiss francs ($655.81 million) for the April-June quarter after exiting most of its Archegos-related positions. A 4.4 billion hit in JanuaryMarch wiped out what would have been a stellar trading period, leaving it with a slightly smallerthan-flagged pre-tax loss of 757 million francs.

Its share price was down 3.6% by 0750 GMT, with analysts pointing to the further Archegos hit and dilution caused by the issuance announced on Thursday of bonds convertible into 203 million shares. "The loss we report this quarter, because of (the Archegos) matter, is unacceptable," Chief Executive Thomas Gottstein said, adding the bond placement "will further strengthen our balance sheet and enable us to support the momentum in our core franchise."

Credit Suisse has emerged as the bank hardest-hit from exposure to Archegos, which collapsed when it could not meet margin calls.

On Thursday, Switzerland's financial market supervisor said it had opened two enforcement proceedings against the bank related to Archegos and Greensill and would appoint a third party to investigate possible shortcomings in risk management.

It said it had ordered several short-term measures to reduce the bank's risk exposure and had requested a suspension of some bonus payments.

Credit Suisse's new bond issuance will boost the bank's core capital level to around 13% from 12.2%, a level its chief financial officer said he had recommended the bank operate at "for the foreseeable future" and higher than its previous guidance. US rivals, some of which were quicker to exit trading positions as Archegos collapsed, produced forecast-beating profit for the first quarter. Net income at

Goldman Sachs Group Inc (GS.N) rose nearly six-fold. Morgan Stanley (MS.N) disclosed an almost $1 billion loss from Archegos yet reported a 150% profit jump. Stripping out the 4.4 billion franc first-quarter hit from Archegos and other significant items, Credit Suisse said pre-tax profit would have been 3.6 billion francs, which would have represented its best quarter operationally in at least a decade.

Highlighting the strong environment, Credit Suisse posted bumper earnings in its AsiaPacific unit, up 154% year-onyear, and a 25% pre-tax profit rise in its Swiss business - the only two divisions unscathed by the recent Archegos and Greensill episodes.

While Gottstein has been grappling with limiting the damage to the bank's reputation and retaining both clients and staff, broader strategic initiatives have remained pending until current shareholders, as widely expected, elect Lloyds Banking Group PLC (LLOY.L) Chief Executive Antonio Horta-Osorio as Credit Suisse's next chairman on April 30. Analysts expect the troubles which have hit the bank's capital reserves - to impact earnings in future quarters, as lower capital reserves may limit risk appetite and impact staff and client relationships. The bank on Thursday said it had cut compensation and benefit costs by 5% year-on-year, or 109 million francs on an adjusted basis. That represented a fraction of a massive drop in bonus accruals media had previously reported.

"In terms of employee retention (and compensation), we need to walk a balance. If we'd chose to increase compensation accruals this quarter after the bank has made a loss, I don't think that would be really acceptable to shareholders, frankly," CFO David Mathers told Reuters.

"That's understood by everybody at the bank. But clearly, there's the rest of the year to play for, and we'll see how performance goes and accrue accordingly," he said.

Investment banking posted a $2.6 billion pre-tax loss, as a 29% leap in fixed income sales and trading, 23% leap in equity sales and trading revenue, and much larger gains in capital markets and advisory failed to offset the huge hit from Archegos that the unit recorded. Its asset management unit, which ran $10 billion in funds linked to Greensill, saw profit dip 30% as a rise in managed assets failed to stop "significant items" pulling down revenue.

The unit, which is undergoing an overhaul, was already a source of trouble in the fourth quarter, when it was hit with a half-billion dollar impairment on a stake in another U.S. investment fund.