Credit Suisse Group AG yesterday reported a bigger-than-expected plunge in second-quarter profit, as the aftershocks of the Archegos Capital Management LLC and Greensill Capital Ltd scandals reverberate across the investment bank and wealth management businesses.
Net income tumbled 78 percent from a year earlier to 253 million Swiss francs (US$278 million), dragged down by a slump in trading that was exacerbated by a US$653 million Archegos-related loss.
The advisory business — a key area of strength in the past few quarters — saw revenue decline by more than one-third, while the bank saw billions of outflows in Asia as it reduced ties with some clients.
At the investment bank — which was hit by the Archegos collapse — fixed-income trading was down 33 percent from a year earlier.
Equities revenue slumped 17 percent, and deal advisory revenue fell by one-third.
Credit Suisse is working to recover from one of the most turbulent periods since the financial crisis, after it was rocked by the Archegos and Greensill Capital scandals, which caused a US$5.5 billion hit and hurt the bank’s reputation.
Vowing reforms, new chairman Antonio Horta-Osorio has said the scandals went beyond any he had lived through over three-and-a-half decades in banking.
The lender raised US2 billion from investors to shore up capital and a strategy review is expected later this year.
“We take these two events very seriously and are determined to learn all the right lessons,” CEO Thomas Gottstein said. “We have significantly reduced our risk-weighted assets and leverage exposure, and improved the risk profile of our prime services business in the investment bank.”
The bank’s actions to pare risk include downsizing the unit that services hedge funds by one-third and cutting ties with clients deemed high risk.
In the second quarter, that translated to US$4.2 billion of outflows across wealth clients in Southeast Asia, Japan and China.
Revenue at its global trading solutions business — a joint venture between the investment bank and wealth businesses — also declined “in part due to our more conservative risk appetite in the investment bank.”
Alongside second-quarter results, the bank also published the findings of its internal report into the Archegos disaster, prepared by US law firm Paul, Weiss, Rifkind, Wharton & Garrison LLP. It faulted employees at the prime services unit who “systematically ignored” repeated red flags, although said no criminality was involved.
The Swiss firm said it ousted nine executives and recouped about US$70 million in pay, including bonus clawbacks, as it punished 23 people in all for their role in the scandal.
The bank signaled that further measures to reduce risk could be on the way as part of the ongoing review of the business strategy.
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