Credit score Suisse, Nomura take hit from U.S. hedge fund, warn of losses

Pedestrians go by a Credit score Suisse Group AG financial institution department in Biel, Switzerland, on Monday, Feb. 15, 2021.

Stefan Wermuth | Bloomberg | Getty Photos

LONDON — Credit score Suisse and Nomura warned Monday of “vital” hits to first-quarter outcomes, after they started exiting positions with a big U.S. hedge fund that defaulted on margin calls final week.

Whereas neither Credit score Suisse nor Nomura named the fund, it has been broadly reported that Archegos Capital Administration is the agency related to the fireplace sale.

In a buying and selling replace earlier than the market open, Credit score Suisse stated various different banks have been additionally affected and had begun exiting their positions with the unnamed agency. The Zurich-based lender’s shares closed down almost 14% on Monday following the announcement.

“Whereas right now it’s untimely to quantify the precise measurement of the loss ensuing from this exit, it might be extremely vital and materials to our first quarter outcomes, however the constructive traits introduced in our buying and selling assertion earlier this month,” Credit score Suisse stated. It added that it could present an additional replace on the matter “sooner or later.”

A margin name happens when a dealer calls for that an investor deposits more cash right into a margin account, which allows them to speculate cash borrowed from the dealer, to convey it to a minimal required quantity. The investor then has to both deposit into the account, or promote a number of the property held in it.

Nomura additionally issued a buying and selling replace on Monday warning of a “vital loss” at considered one of its U.S. subsidiaries ensuing from transactions with a consumer stateside. Japan’s largest funding financial institution stated it was evaluating the potential extent of the loss, estimated at $2 billion. Its shares fell greater than 16% on Monday.

“This estimate is topic to alter relying on unwinding of the transactions and fluctuations in market costs,” the financial institution stated.

“Nomura will proceed to take the suitable steps to handle this concern and make an additional disclosure as soon as the influence of the potential loss has been decided.”

Archegos Capital Administration was compelled to liquidate positions on the finish of final week. The strikes by the multibillion greenback U.S. household workplace, based by former Tiger Administration fairness analyst Invoice Hwang, prompted a wave of promoting stress on Friday, with U.S. media shares and Chinese language web ADRs taking the brunt.

A dealer who requested to stay nameless instructed CNBC this weekend that Credit score Suisse — together with Goldman Sachs, Morgan Stanley and Deutsche Financial institution — all compelled Archegos to liquidate various positions.

CNBC reached out to Archegos Capital over the weekend, however calls and emails weren’t returned.

Johann Scholtz, fairness analyst at Morningstar, instructed CNBC on Monday there might be extra publicity to Archegos within the banking house.

“However I feel the query is admittedly to what extent the banks have hedged out their dangers, and plainly Nomura and Credit score Suisse’s threat administration was possibly not as stringent because it may need been, or ought to have been, which I feel explains the big strikes of their share costs this morning,” he added.

Tumultuous time for Credit score Suisse

The newest developments come amid a tumultuous 18 months for Credit score Suisse. Earlier this month, the financial institution introduced a shakeup of its asset administration enterprise and a suspension of bonuses because it seemed to comprise the harm from the collapse of British provide chain finance agency Greensill Capital.

Credit score Suisse’s asset administration unit held $10 billion of the agency’s funds and famous that some buyers had threatened authorized motion.

In February 2020, former CEO Tidjane Thiam resigned following a spying scandal that engulfed the financial institution in 2019. Thiam maintained that he had no data of the surveillance of two former colleagues, together with departed wealth administration boss Iqbal Khan.

Financial institution of America on Monday downgraded Credit score Suisse’s inventory to impartial and minimize its 2021 revenue and buyback forecasts by 500 million Swiss francs ($533 million).

The Financial institution of America analysts steered this newest setback might be “one too many concern for the corporate to look via within the regular course of enterprise.”

“After the collection of points the group has confronted in current months, throughout Greensill, mortgage backed securities litigation and a hedge fund write-down, we imagine its capital cushion has possible been diminished to the purpose the place its buyback is instantly affected,” they added.

Scholtz additionally famous the variety of issues at Credit score Suisse, together with the financial institution’s earlier publicity to Wirecard and Luckin Espresso, each of which grew to become embroiled in fraud scandals final 12 months.

“It actually appears if there’s a pothole within the highway, Credit score Suisse goes to hit it,” he stated.

“While we have now been continuously highlighting worth that we have now seen in Credit score Suisse, that is actually pause for thought within the sense that it’s actually the most recent in a litany of problematic exposures.”