Credit Suisse takes axe to prime broking after multibillion-dollar losses

Credit Suisse plans to all but exit the prime brokerage business that left it with $5.1bn of losses this year, as new chair António Horta-Osório unveiled a restructuring of the troubled lender.

In a new strategy outlined on Thursday, Credit Suisse will consolidate its wealth management division and streamline its investment bank, including mostly exiting its prime broking unit that serves hedge funds and was at the heart of the losses incurred from the collapse of family office Archegos Capital.

Horta-Osório, who joined as chair in April, has spent the past six months planning a revamp of a bank beset by crises in recent years.

“Risk management will be at the core of our actions, helping to foster a culture that reinforces the importance of accountability and responsibility,” Horta-Osório said in a statement.

But the restructure, which was unveiled at an investor day on Thursday, failed to excite shareholders, with the bank’s share price falling 5 per cent immediately following the presentation.

Andrew Coombs, an analyst at Citigroup, said the bank’s restructuring was sensible, but pointed out that some investors had hoped for more radical change.

“We also fear the exit from prime is likely to leave the rest of the equity business as nothing more than a service function for the wider group and unable to turn a profit in its own right,” he said.

The revamp came alongside the bank’s third-quarter results, which showed a 26 per cent rise in pre-tax profits from a year earlier thanks to strong performance in its wealth management business and a record third quarter for its domestic Swiss bank.

The SFr1bn of pre-tax profits for the quarter comfortably beat analyst forecasts. Revenues at its wealth business were up 3 per cent from a year earlier, while its investment bank revenues rose 10 per cent. The bank also released SFr144m of provisions for credit losses.

The bank’s common equity tier 1 ratio — a benchmark of financial strength — rose to 14.4 per cent, comfortably above its 10.7 per cent minimum requirement.

Credit Suisse said it would de-risk its prime brokerage business following the collapse of Archegos in March. David Mathers, the bank’s chief financial officer, told reporters on Thursday that this had led to a $300m loss in revenues.

The bank’s equities trading division reported a 9 per cent fall in revenues compared with a year earlier. This contrasts with other US and European investment banks — including Swiss rival UBS. Mathers said the decline was entirely due to the de-risking of prime broking.

Credit Suisse said it had recovered $257m from its initial $5.4bn losses on Archegos. The bank suffered the heaviest losses among a group of international lenders that provided prime broking services to Archegos and collectively lost more than $10bn on its collapse.

The bank will continue to offer prime broking in two areas, known as Index Access and Apac Delta One, but the bank does not see these as significant and is keeping them running only to offer services to ultra-rich clients in Asia.

Since joining, Horta-Osório’s focus has been on attempting to draw a line under past controversies that have dogged the bank. These efforts include settlements with regulators in three countries last month over the Mozambique tuna bonds scandal and the conclusion of a year-long investigation into corporate espionage by Swiss regulator Finma.

Credit Suisse on Thursday also revealed it was setting aside SFr564m for litigation costs relating to a range of historic matters, including potential lawsuits from investors who lost money from investing in the bank’s supply chain funds linked to collapsed finance group Greensill Capital.

Last month the bank agreed to pay $475m in fines and forgive $200m of debt owed by Mozambique in a series of co-ordinated settlements with four regulators in three countries over its role in the long-running “tuna bonds” scandal.

Credit Suisse had previously disclosed it would take a $230m charge in the third quarter in relation to the settlements. The bank also reported a further SFr113m impairment charge from its investment in hedge fund York Capital.