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The big bank is warning of potentially significant losses it could incur due to a US hedge fund.
The bad news is mounting at Credit Suisse right now.
Credit Suisse (CS) appears to be one of the banks affected by the Archegos Capital Management family office case. The bank announced early Monday morning that a major US hedge fund had failed to comply with a request from CS and other banks to provide additional collateral (“margin call”).
Like other banks, the CS is now in the process of liquidating the hedge fund positions and warns of a potentially significant loss that will be reflected in the quarterly results. The exact extent of the losses cannot yet be quantified. More information will be provided in due course.
The CS did not explicitly write that the fund in question is Archegos Capital Management. But the circumstances clearly suggest it. Over the weekend it emerged that some banks had begun to liquidate positions in Archegos Capital, the family office of former hedge fund manager Bill Hwang.
A loan building implodes
Archegos Capital built these positions using large loans from various banks that acted as brokers for the fund. When banks began to question their positioning, they requested more collateral to secure the loan they had made. Archegos Capital was unable to deliver this guarantee and the big liquidation began.
Banks can sell Archegos securities to get the money they borrowed back. But if these securities are suddenly worth much less in the market, they themselves also suffer a loss.
The sale of Archegos’ positions, which hit a temporary high on Friday, also meant that certain Chinese tech stocks or US media stocks of Discovery and Viacom fell sharply in value.
According to media reports, other affected banks include Goldman Sachs, Morgan Stanley and Deutsche Bank. Major Japanese bank N0mura also warned of potentially significant losses it could incur due to a US customer (see info box).
A collapse rarely comes alone
The bad news comes at a particularly inopportune time for CS, as it is currently trying to reorganize itself after a series of setbacks. In particular, the bankruptcy of Greensill Capital, a finance company that offered and securitized supply chain financing, caused damage to CS’s reputation and possibly substantial losses as well. The bank’s main clients who had invested in the Greensill funds announced by the bank are now threatening legal action against CS.
As a result, the large bank brought in Ulrich Körner as the new head for its asset management and separated the division from the international asset management business.
Even before the Greensill case, the CS had to deal with several “unique effects.” Among other things, a large write-down from another New York hedge fund, York Capital Management, meant the big bank had to post losses in the quarter last year, even though the bank’s core business was actually doing well.
Dramatic price drop
Credit Suisse shares rapidly lost more than 9 percent on Monday morning. Shortly after noon, the difference was almost 15 percent. In total, the bank lost more than 4 billion Swiss francs in market capitalization in half a trading day. Investors are currently bracing for a major loss to stick to Credit Suisse’s books.
Shares of other European banks, such as UBS, Deutsche Bank or BNP Paribas, are currently trading below the previous day’s value, but the downside is limited to a small percentage.
Japan’s investment bank Nomura is also getting caught in the vortex
koe. The share price of Japan’s investment bank Nomura Holdings plummeted more dramatically on Monday than since the global financial crisis. At the close of trading, the stock fell 16.3% to 603 yen. The trigger was Nomura’s warning that transactions between the US subsidiary and a major client there could result in losses of $ 2 billion. The absolute amount of the special loss could change “depending on the reversal of transactions and fluctuations in market prices,” Nomura said only. The banks forced Archegos Capital Management, the family office of former Tiger management trader Bill Hwang, to sell more than $ 20 billion in stock because the market turned against the asset manager’s positions. This also resulted in huge losses for the Nomura subsidiary.
