Swiss banking giant Credit Suisse announced the departure of its risk and investment banking chiefs after it suffered a $4.7 billion hit following the collapse of Archegos Capital Management.
Archegos, a family-run U.S. investment firm, collapsed last month after suffering devastating losses. According to the Financial Times, Archegos lost a staggering $110 Billion in a mere five days.
Chief Risk Officer Lara Warner and Brian Chin, the bank’s head of investment banking operations, will both depart at the end of April. The hit comes close on the heels of the collapse of the U.K. finance firm Greenshill Capital, from which the bank also suffered major losses.
This double blow represents the bank’s biggest challenges in years and has also hit at a time when it was going through a leadership transition. The new Chief Executive, Thomas Gottstein, took over the last year after his predecessor was caught spying on an ex-employee.
Moreover, the bank’s long-serving Chairman Urs Rohner is due to retire later this month, no doubt breathing a sigh of relief as he goes. Lloyd’s banking group Chief Executive Antonio Horta-Osorio is to replace him.
A troubled recent past
Thomas Gottstein had promised to make sweeping changes and run a tighter ship when he took office. In this sense, it is not a promising start. Credit Suisse’s reputation as the go-to bank with a name as a safe place for the world’s wealthiest to store their wealth, is in danger.
The tighter ship that Mr. Gottstein referred to, was about the bank’s recent history. A series of ill-thought-out moves had resulted in a series of one-off payments that dented the bank’s earnings, and its reputation.
The time that these ‘Anomalies’ can be considered as one-off events is rapidly fading. It seems that Mr. Gottstein has his work cut out for him. A view echoed by Nir Kossovsky, Chief Executive of Steel City Re, a firm that helps businesses manage reputational risk. He is on record as saying –
“The one-two punch of Greensill and Archegos shreds any illusion that its rolling reputational crises are excusable anomalies. The issue almost always boils down to siloed knowledge, authority, and accountability, and not having a cross-organizational intelligence gathering and analysis around reputational risk.”
In the short-term Credit Suisse has suspended a share buyback program and will pay a reduced dividend. The Executive Board, including Thomas Gottstein, will not receive any bonuses for 2020.
As a result of the crisis, Credit Suisse shares have fallen by close to 25%, although they did rally slightly by the close of markets on Tuesday.
The bank has admitted that its dealings with Archego and Greensill will require “Substantial further review and scrutiny.” The outcome of this process is likely to recommend that Credit Suisse alters the mix between its risky investment bank operations and its lucrative wealth management franchise.
In the longer term, it is also likely to come under far closer scrutiny from regulators and potentially the loss of clients, who no longer see the bank as a safe haven.