Credit Suisse loses ground in prime broking after Archegos blow-up – About Your Online Magazine


Credit Suisse has lost ground to rival banks in winning new business for its main brokerage unit this year, after suffering a $5.5 billion loss in credit extended to Bill Hwang’s family firm Archegos and vowing to reduce risk.

The bank won about 2.5% of new hedge fund clients served by top-tier brokers in 2021, lagging behind the 5.5% average for the previous six years, according to data compiled by Preqin for the Financial Times .

Credit Suisse signed four of the 156 new hedge funds served by major banks this year, dropping the brokerage rankings in terms of the number of new hedge funds served from the sixth in 2020 to the ninth in 2021, according to the data. from Preqin, which tracks the alternative asset management industry.

The numbers highlighted the impact on Credit Suisse the March explosion of Archegos, which managed the family wealth of former hedge fund manager Bill Hwang. Credit Suisse declined to comment.

In April, Thomas Gottstein, chief executive of Credit Suisse, told investors that the bank’s top-tier brokerage and financing businesses would be “scaled and risk-free” in the wake of Archegos’ losses.

Credit Suisse's line chart has seen its share of new business in its core brokerage business shrink this year. showing subprime broker

“By the end of 2021, we plan to reduce the leverage exposure of investment banks by at least $35 billion and align risk-weighted assets to no more than late 2020 levels,” Gottstein said.

Top-tier brokerage divisions serve hedge funds and wealthy clients, offering a range of services, including stock lending, leverage and trade execution.

Done on a large scale, it is considered one of the most profitable areas of investment banking. JPMorgan analyst Kian Abouhossein estimated that Credit Suisse won $900 million in revenue last year of the unit.

Several Wall Street banks, including Goldman Sachs, Morgan Stanley and Nomura, also provided top-notch brokerage services to Archegos, but Credit Suisse suffered. by far the heaviest losses.

The bank said the sale of shares associated with Archegos cost more than $5 billion. By comparison, Nomura lost nearly $3 billion, Morgan Stanley took a $911 million hit, while Goldman Sachs got away with virtually unharmed.

Since then, Credit Suisse has shuffled the lead of its main brokerage unit, with the firing of John Dabbs and Ryan Nelson, the FT reported in April. Brian Chin, Head of Investment Banking at Credit Suisse, and Lara Warner, Chief Risk and Compliance Officer, also came out the bank.

Paula Fonseca