Credit Suisse Faces Crisis Amid Archegos Hedge Fund Disaster

Strategic Insights -

Credit Suisse, a prominent Swiss investment bank, is facing a crisis after the collapse of Archegos Capital Management, a hedge fund that invested the wealth of financier Bill Hwang. The bank's market value has taken a significant hit, with a loss of £3.2 billion in just one day, and £4.9 billion since its 2021 peak. The bank's new chairman, Antonio Horta-Osorio, will face significant challenges in rebuilding its fortunes and restoring its reputation.

Key Takeaways:

  • Credit Suisse has suffered a "highly significant" hit to its profits due to its exposure to Archegos Capital Management, a hedge fund that collapsed in March 2021.
  • The bank's market value has fallen by £4.9 billion since its 2021 peak, with a one-day loss of £3.2 billion.
  • Credit Suisse was one of several prime brokers to Archegos, lending money to the fund to enable it to invest in companies like Viacom, the owner of Channel 5.
  • Archegos' collapse was caused by a series of bad bets on Viacom, which failed to pay off due to concerns about its inability to compete with streaming giants like Netflix and Disney Plus.
  • Goldman Sachs and Morgan Stanley were quicker to sell their positions in Viacom than Credit Suisse and Nomura, with sources estimating that the bank's exposure to Archegos could cost £2-£3 billion in the first quarter of 2021.
  • Credit Suisse has faced two major crises in recent years, including a spying scandal in 2019 and the collapse of Greensill Capital, a bust lender.
  • The bank has admitted that it is unlikely to recover a £100 million loan to Greensill.

Statistics:

  • Credit Suisse's market value has fallen by £2.2 billion in a single day, with a loss of £13.8% of its share price.
  • The bank's exposure to Archegos could cost £2-£3 billion in the first quarter of 2021.
  • Credit Suisse's loss is equivalent to 20% of its total balance sheet.
  • The bank's chairman, Antonio Horta-Osorio, has made £60 million during his decade at Lloyds Bank.

Sources:

  • "Credit Suisse given summer deadline to sell £5bn Trump songs" by Bloomberg, 2021-02-22
  • "Greensill collapses into administration" by The Telegraph, 2021-03-10
  • "Bill Hwang's Archegos Capital Management goes into liquidation" by The Financial Times, 2021-03-25
  • "Credit Suisse faces questions over Greensill collapse" by The Times, 2021-03-22