Tag Archives: Credit Suisse Group

Business

Credit Suisse Warns of $1.6 Billion Loss After Clients Pull Money

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Credit Suisse

CS -6.85%

Group AG warned it would lose around $1.6 billion in the fourth quarter after customers pulled their investments and deposits over concerns about the bank’s financial health.

The warning of a big pretax loss pushed Credit Suisse’s shares to a new closing low, below a previous nadir hit in late September as concerns swirled about the bank’s financial health.

Switzerland’s No. 2 bank by assets said outflows were around 6% of its total $1.47 trillion assets, or around $88.3 billion, between Sept. 30 and Nov. 11. Customers in its wealth-management arm—its main business serving the world’s rich—removed $66.7 billion from the bank. Credit Suisse in late October said that a social-media frenzy around its finances was causing large outflows. The bank typically attracts at least $30 billion in net new assets in a year and hasn’t posted an annual net outflow since 2008, according to its filings.

Analysts at JPMorgan said the outflows and the anticipated loss were much worse than they expected. The bank “is not out of the woods yet in terms of stabilizing the franchise,” they said.

The fast pace of withdrawals meant the bank’s liquidity fell below some local-level requirements, the bank said. It said it maintained its required group-level liquidity and funding ratios at all times. Banks must keep enough liquid assets on hand to meet expected cash outflows in a 30-day period, under post-financial-crisis-era rules.

Credit Suisse’s stock fell 6.1% Wednesday to end at 3.62 Swiss francs, a record closing low. The shares are down 59% this year, according to FactSet.

The cost to insure the bank’s debt against default rose Wednesday.

The warning comes at a precarious time for the bank, which weeks ago launched a sweeping overhaul of its operations. Credit Suisse received shareholder approval Wednesday on a plan to raise more than $4 billion in new stock. It is in the process of selling a large group within its investment bank to free up capital, as part of its recovery effort.

The new stock is being sold to new and existing investors, with terms due to be finalized Thursday. Saudi National Bank said it would take a stake of up to 9.9% as a new shareholder. Some analysts are concerned the new capital raising may not be enough if Credit Suisse’s revamp doesn’t go to plan. The bank’s capital needs depend on selling and exiting some businesses, and on how its continuing businesses perform.

Chairman

Axel Lehmann

said shareholders showed their confidence in the bank by approving the stock increase.

The reduction of customer assets means Credit Suisse has less money to manage and earns less in fees. A broader slowdown in activity in its wealth-management division and investment bank contributed to the warning of a pretax loss of around $1.6 billion for the quarter, it said.

In all, more than $100 billion has left the bank since June, according to Credit Suisse’s filings. It said client balances have stabilized in its Swiss bank and that the outflows have slowed in wealth management, but haven’t reversed.

Wealth management, the business of managing rich people’s money, is Credit Suisse’s largest and most important business. The bank’s overhaul is meant to reduce its reliance on risky Wall Street trades and double down on the steady fee-collecting business of working with the world’s ultra wealthy.

Large outflows indicate that some of those well-heeled clients have grown wary of Credit Suisse’s troubles despite its more than 160-year history. The bank was hit hard when a client, family office Archegos Capital Management, defaulted in March 2021, triggering a loss of more than $5 billion.

Uncertain markets have meant clients aren’t transacting as much across wealth managers. However, crosstown rival UBS Group AG reported around $35 billion in net new fee generating assets from wealth- and asset-management clients in the third quarter. 

Concerns about the bank reached a fever pitch in October when commentators on social-media platforms Twitter and Reddit called into question the bank’s health.

Credit Suisse warned last month it would make a net loss in the fourth quarter, in part because of costs from the overhaul. It posted consecutive quarterly losses this year after starting to restructure its operations late last year. In last year’s fourth quarter, it lost around $2.2 billion.

The bank said it is still targeting a capital ratio of at least 13% between 2023 and 2025 as it restructures.

Write to Margot Patrick at margot.patrick@wsj.com

Corrections & Amplifications
Credit Suisse reported about a $2.2 billion net loss in the fourth quarter of 2021. An earlier version of this article incorrectly said it lost around $1.7 billion in the quarter. (Corrected on Nov. 23)

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Business

Elon Musk’s Revived Twitter Deal Could Saddle Banks With Big Losses

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Banks that agreed to fund

Elon Musk’s

takeover of

Twitter Inc.

TWTR -3.72%

are facing the possibility of big losses now that the billionaire has shifted course and indicated a willingness to follow through with the deal, in the latest sign of trouble for debt markets that are crucial for funding takeovers.

As is typical in leveraged buyouts, the banks planned to unload the debt rather than hold it on their books, but a decline in markets since April means that if they did so now they would be on the hook for losses that could run into the hundreds of millions, according to people familiar with the matter.

Banks are presently looking at an estimated $500 million in losses if they tried to unload all the debt to third-party investors, according to 9fin, a leveraged-finance analytics firm.

Representatives of Mr. Musk and Twitter had been trying to hash out terms of a settlement that would enable the stalled deal to proceed, grappling with issues including whether it would be contingent on Mr. Musk receiving the necessary debt financing, as he is now requesting. On Thursday, a judge put an impending trial over the deal on hold, effectively ending those talks and giving Mr. Musk until Oct. 28 to close the transaction.

The debt package includes $6.5 billion in term loans, a $500 million revolving line of credit, $3 billion in secured bonds and $3 billion in unsecured bonds, according to public disclosures. To pay for the deal, Mr. Musk also needs to come up with roughly $34 billion in equity. To help with that, he received commitment letters in May for over $7 billion in financing from 19 investors including

Oracle Corp.

co-founder and

Tesla Inc.

then-board member

Larry Ellison

and venture firm Sequoia Capital Fund LP.

Twitter will become a private company if Elon Musk’s $44 billion takeover bid is approved. The move would allow Musk to make changes to the site. WSJ’s Dan Gallagher explains Musk’s proposed changes and the challenges he might face enacting them. Illustration: Jordan Kranse

The Twitter debt would be the latest to hit the market while high-yield credit is effectively unavailable to many borrowers, as buyers of corporate debt are demanding better terms and bargain prices over concerns about an economic slowdown.

That has dealt a significant blow to a business that represents an important source of revenue for Wall Street banks and has already suffered more than $1 billion in collective losses this year.

The biggest chunk of that came last month, when banks including Bank of America,

Goldman Sachs Group Inc.

and

Credit Suisse Group AG

sold debt associated with the $16.5 billion leveraged buyout of Citrix Systems Inc. Banks collectively lost more than $500 million on the purchase, the Journal reported.

Banks had to buy around $6 billion of Citrix’s debt themselves after it became clear that investors’ interest in the total debt package was muted.

“The recent Citrix deal suggests the market would struggle to digest the billions of loans and bonds contemplated by the original Twitter financing plan,” said Steven Hunter, chief executive at 9fin.

People familiar with Twitter’s debt-financing package said the banks built “flex” into the deal, which can help them reduce their losses. It enables them to raise the interest rates on the debt, meaning the company would be on the hook for higher interest costs, to try to attract more investors to buy it.

However, that flex is usually capped, and if investors still aren’t interested in the debt at higher interest rates, banks could eventually have to sell at a discount and absorb losses, or choose to hold the borrowings on their books.

Elon Musk has offered to close his acquisition of Twitter on the terms he originally agreed to.



Photo:

Mike Blake/REUTERS

The leveraged loans and bonds for Twitter are part of $46 billion of debt still waiting to be split up and sold by banks for buyout deals, according to Goldman data. That includes debt associated with deals including the roughly $16 billion purchase of

Nielsen Holdings

PLC, the $7 billion acquisition of automotive-products company

Tenneco

and the $8.6 billion takeover of media company

Tegna Inc.

Private-equity firms rely on leveraged loans and high-yield bonds to help pay for their largest deals. Banks generally parcel out leveraged loans to institutional investors such as mutual funds and collateralized-loan-obligation managers.

When banks can’t sell debt, that usually winds up costing them even if they choose not to sell at a loss. Holding loans and bonds can force them to add more regulatory capital to protect their balance sheets and limit the credit banks are willing to provide to others.

In past downturns, losses from leveraged finance have led to layoffs, and banks took years to rebuild their high-yield departments. Leveraged-loan and high-yield-bond volumes plummeted after the 2008 financial crisis as banks weren’t willing to add on more risk.

Indeed, many of Wall Street’s major banks are expected to trim the ranks of their leveraged-finance groups in the coming months, according to people familiar with the matter.

Still, experts say that banks look much better positioned to weather a downturn now, thanks to postcrisis regulations requiring more capital on balance sheets and better liquidity.

“Overall, the level of risk within the banking system now is just not the same as it was pre-financial crisis,” said Greg Hertrich, head of U.S. depository strategy at Nomura.

Last year was a banner year for private-equity deal making, with some $146 billion of loans issued for buyouts—the most since 2007.

However, continued losses from deals such as Citrix and potentially Twitter may continue to cool bank lending for M&A, as well as for companies that have low credit ratings in general.

“There’s going to be a period of risk aversion as the industry thinks through what are acceptable terms for new deals,” said Richard Ramsden, an analyst at Goldman covering the banking industry. “Until there’s clarity over that, there won’t be many new debt commitments.”

—Cara Lombardo contributed to this article.

Write to Alexander Saeedy at alexander.saeedy@wsj.com, Laura Cooper at laura.cooper@wsj.com and Ben Dummett at ben.dummett@wsj.com

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Business

Wall Street to Pay $1.8 Billion in Fines Over Traders’ Use of Banned Messaging Apps

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WASHINGTON—Eleven of the world’s largest banks and brokerages will collectively pay $1.8 billion in fines to resolve regulatory investigations over their employees’ use of messaging applications that broke record-keeping rules, regulators said Tuesday.

The fines, which many of the banks had already disclosed to shareholders, underscore the market regulators’ stern approach to civil enforcement. Fines of $200 million, which many of the banks will pay under the agreements, have typically been seen only in fraud cases or investigations that alleged harm to investors.

But the SEC, in particular, has during the Biden administration pushed for fines that are higher than precedents, saying it wants to levy fines that punish wrongdoing and effectively deter future potential harm. The SEC’s focus on record-keeping is likely to be extended next to money managers, who also have a duty to maintain written communications related to investment advice.

Last month, the SEC alleged that hedge-fund manager Deccan Value Investors LP and its chief investment officer failed to maintain messages sent over

Apple

iMessage and WhatsApp. In some cases, the chief investment officer directed an officer of the company to delete their text messages, the SEC said. The claims were included in a broader enforcement action, which Deccan settled without admitting or denying wrongdoing.

The Wall Street Journal reported last month that the settlements announced Tuesday were likely to top $1 billion and would be announced before the end of September.

Eight of the largest entities, including Goldman Sachs and Morgan Stanley, agreed to pay $125 million to the SEC and at least $75 million to the CFTC. Jefferies will pay a total of $80 million to the two market regulators, and

Nomura

NMR -1.20%

agreed to pay $100 million. Cantor agreed to pay $16 million.

The SEC said it found “pervasive off-channel communications.” In some cases, supervisors at the banks were aware of and even encouraged employees to use unauthorized messaging apps instead of communicating over company email or other approved platforms.

“Today’s actions—both in terms of the firms involved and the size of the penalties ordered—underscore the importance of recordkeeping requirements: they’re sacrosanct. If there are allegations of wrongdoing or misconduct, we must be able to examine a firm’s books and records to determine what happened,” said SEC Enforcement Director

Gurbir Grewal.

Bank of America, which faced the highest fine from the CFTC, had a “widespread and long-standing use of unapproved methods to engage in business-related communications,” according to the CFTC’s settlement order. One trader wrote in a 2020 message to a colleague: “We use WhatsApp all the time, but we delete convos regularly,” according to the CFTC.

One head of a trading desk at Bank of America told subordinates to delete messages from their personal devices and to communicate through the encrypted messaging app Signal, the CFTC said. The head of that trading desk resigned this year, although the bank was aware of his conduct in 2021, the CFTC said.

At Nomura, one trader deleted messages on his personal device in 2019 after being told the CFTC wanted them for an investigation, the agency said. The trader made false statements to the CFTC about his compliance with the records request, the regulator said.

Broker-dealers have to follow strict record-keeping rules intended to ensure regulators can access documents for oversight purposes. The firms settling with the SEC and CFTC admitted their employees’ conduct violated those regulations.

JPMorgan Chase

& Co.’s brokerage arm was the first to settle with the two market regulators over its failure to maintain required electronic records. JPMorgan paid $200 million last year and admitted some employees used WhatsApp and other messaging tools to do business, which also broke the bank’s own policies.

Regulators discovered that some JPMorgan communications, which should have been turned over for separate enforcement investigations, weren’t collected because they were sent on employees’ personal devices or apps that the bank didn’t supervise.

Write to Dave Michaels at dave.michaels@wsj.com

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Business

Credit Suisse’s António Horta-Osório Lost Board Support Over Covid-19 Rules Breach

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He came to fix

Credit Suisse Group AG’s

broken culture. Then he became part of the problem. 

António Horta-Osório

was hoping for a slap on the wrist Sunday from the

Credit Suisse

CS 0.38%

board for breaking coronavirus quarantine rules on trips to events, according to people familiar with his departure. Instead, he had to leave his job as the bank’s chairman for not upholding the high standards he set when joining Credit Suisse eight months ago.

Mr. Horta-Osório had to leave after most members of the board refused to back him at a meeting that ran late into the Zurich evening, ending weeks of attempts by the bank to contain its latest crisis. A bank probe into Mr. Horta-Osório’s travel found he had breached quarantine rules in England and Switzerland since starting at Credit Suisse, including to attend the Wimbledon tennis final in July. 

The Portugal-born banker also used private aircraft hired by Credit Suisse to combine personal travel and work trips that made some on the board uncomfortable, according to people familiar with the matter.

Credit Suisse found Chairman António Horta-Osório had breached quarantine rules in England and Switzerland.



Photo:

Chris J. Ratcliffe/Bloomberg News

A spokesman for Mr. Horta-Osório said the jet use was “in line with that of his predecessor in the role and actually similar to other senior colleagues in the bank. It was also never used without a business-related reason and this has been confirmed by an internal audit.”

Some members of the board were concerned Mr. Horta-Osório was no longer credible with employees or customers to fix what had come to be seen as a broken culture at the bank around risk taking, the people familiar with the matter said.

The sudden departure adds to a nightmarish stretch for the bank. In February 2020, Chief Executive

Tidjane Thiam

was ousted by the bank’s board for failing to contain the reputational fallout from a scandal that involved some staff being followed by private investigators. Then last year it was hit by twin crises, with the collapse of clients Greensill Capital and Archegos Capital Management. 

Axel Lehmann,

Mr. Horta-Osório’s successor as chairman, who was appointed on Sunday, has been vetted by Switzerland’s financial regulator, having joined Credit Suisse’s board in October after working at rival

UBS Group AG

for more than a decade.

Mr. Lehmann is described by people who have worked with him as an archetypal Swiss professional, with a pleasant demeanor and tough interior. An attribute he brings to the role is a high-functioning relationship with Swiss regulators and other power brokers in the country, some of the people said.

Mr. Horta-Osório’s departure makes him one of the biggest casualties of coronavirus rule breaches. Two Canadian executives resigned from their posts last year after traveling to get vaccinated. Separately, the head of a Canadian pension fund resigned after The Wall Street Journal reported he traveled to the Middle East to get an early vaccine dose. 

In December, Mr. Horta-Osório apologized to board members—and publicly—for leaving Switzerland when he was supposed to be in quarantine after a trip to London. He said it was inadvertent. He also apologized to board members for using private aircraft hired by Credit Suisse to stop off for a vacation in the Maldives on the way back from a work trip, people familiar with the trip said. His stance was that the travel complied with company rules, according to some of the people.

The deterioration in some on the board’s trust escalated after Reuters reported in late December on Mr. Horta-Osório’s Wimbledon trip and quarantine breach, according to some of the people. In the new year, the board’s audit committee reviewed a report into his travel and the quarantine breaches, and Credit Suisse started preparing for Mr. Horta-Osório’s possible departure, according to some of the people familiar with the matter. 

Mr. Horta-Osório attended Wimbledon’s tennis finals believing a waiver from England’s quarantine rules had been arranged for him by Credit Suisse, his spokesman said. Mr. Horta-Osorio attended the tournament with members of his family and a bank adviser after Credit Suisse clients canceled, he said.

The timing of the missteps struck a nerve with many Credit Suisse employees, and the order-minded Swiss public. Swiss media compared Mr. Horta-Osório’s conduct to that of British Prime Minister

Boris Johnson

and tennis star Novak Djokovic, who fanned anger this year for appearing to be unfettered from national coronavirus restrictions. 

Credit Suisse is an elite banking brand abroad, but at home in Switzerland has household and business customers of all sizes as the country’s No. 2 bank by assets. Having the top person failing to comply with Swiss rules was seen as an unacceptable situation, according to some of the people familiar with the matter. 

One of the people familiar with the matter said Mr. Horta-Osório attended Sunday’s meeting hoping to be fully supported by the board, which includes recent appointments he made. The chairman resigned when it became apparent he didn’t have enough support. 

Mr. Horta-Osório was supposed to save Credit Suisse from being scandal-prone. He received a British knighthood for his last job turning around the U.K.’s

Lloyds Banking Group PLC,

adding to civil awards in Spain, Brazil and Portugal. People who have worked with him said he is demanding, exacting and takes his reputation seriously. 

He agreed in late 2020 to join Credit Suisse as its chairman, a prestigious role in Switzerland for an institution that dates to 1856. The idea was it would be his main job alongside several other board mandates, to ease into a less-stressful existence than running Lloyds, according to people familiar with his planning. 

Mr. Horta-Osório’s tenure at Lloyds wasn’t without drama. Eight months into that job, in 2011, he took a two-month hiatus to check into a rehabilitation clinic suffering from exhaustion. Then, in 2016, he apologized to Lloyds staff after the Sun newspaper published photographs of Mr. Horta-Osório, who is married with three children, with another woman during a work trip to Singapore. He said he regretted the adverse publicity and damage to Lloyds’s reputation. He said he paid for any personal expenses on the trip. 

A few weeks before his April 30 start date, Credit Suisse incurred a loss of more than $5 billion when Archegos, a family investment firm led by

Bill Hwang,

defaulted on large stock positions.

Mr. Horta-Osório sought to reset the risk button, shedding the bulk of Credit Suisse’s unit servicing hedge funds and centralizing oversight at its main units. He exhorted employees to be more personally responsible and accountable for their actions, and, according to people familiar with the matter, put Chief Executive

Thomas Gottstein

and other top executives on notice to hit the top of their game or leave.

Write to Margot Patrick at margot.patrick@wsj.com and Emily Glazer at Emily.Glazer@wsj.com

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Business

Credit Suisse Fund Accuses SoftBank Over $440 Million Investment

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A

Credit Suisse Group AG

CS 1.68%

fund accused

SoftBank Group Corp.

9984 -0.59%

in U.S. court filings of orchestrating transactions that rendered worthless a $440 million investment the fund had made to finance a SoftBank-backed company.

The filing, made Thursday in a U.S. District Court in California, asks a federal judge to permit the Credit Suisse fund to serve a subpoena on a U.S. arm of SoftBank. The filing, which says that the fund is preparing to sue SoftBank in the U.K., deepens the dispute over the demise of Greensill Capital, a supply-chain finance company that tumbled into insolvency earlier this year.

Greensill made loans to companies that served as advances on expected payments from those companies’ customers; Greensill packaged the loans into securities, which investment funds run by Credit Suisse bought.

One such company was Katerra Inc., a U.S. construction startup. The Credit Suisse fund held $440 million in notes backed by Greensill’s lending to Katerra, and when Katerra ran into financial trouble last year, Greensill forgave the lending.

SoftBank was an investor in both Greensill and Katerra, and in the U.S. court filing the Credit Suisse fund said SoftBank “orchestrated a deal” that cut the fund out of any possible proceeds without telling the fund.

A SoftBank spokesman declined to comment, as did a spokeswoman for Credit Suisse.

SoftBank put money into Greensill at the end of 2020, and Credit Suisse executives expected that money would go to their funds to make good on the Katerra loan—instead, it ended up in Greensill’s German banking unit, The Wall Street Journal reported in April.

In June, the Journal reported that Credit Suisse had dissolved a personal banking relationship with SoftBank founder

Masayoshi Son

and clamped down on transactions with the company.

The court filing made Thursday is known as a Section 1782 petition, in which a party can ask a U.S. court to order evidence-gathering for a proceeding outside the U.S. The Credit Suisse fund argues that it has taken enough steps toward suing SoftBank in the U.K. to justify the subpoena, which seeks a variety of documents.

Write to Charles Forelle at charles.forelle@wsj.com

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Business

Robinhood Agrees to Pay $70 Million to Settle Regulatory Investigation

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WASHINGTON—Robinhood Financial LLC has agreed to pay nearly $70 million to resolve sweeping regulatory allegations that the brokerage misled customers, approved ineligible traders for risky strategies and didn’t supervise technology that failed and locked millions out of trading.

The enforcement action is a blow to the fast-growing online brokerage, which was launched in 2014 and has won over users with commission-free trades and its sleek mobile app. The company took on millions of new customers and attracted more scrutiny this year as many investors accessed Robinhood to speculate on so-called meme stocks such as GameStop Corp. and AMC Entertainment Holdings Inc. Its forthcoming initial public offering is one of the most anticipated of the year.

Robinhood’s growth has continued, with its biggest source of revenue, stemming from customer trading, more than tripling in the first quarter, even as many customers complained about its technology snafus and limited customer service. It enraged clients earlier this year when it restricted trading in some popular stocks that had become so volatile that Robinhood’s clearinghouse told the brokerage to post billions of dollars in additional collateral.

The Financial Industry Regulatory Authority, the front-line inspector of broker-dealers, unveiled the settlement Wednesday. Robinhood neither admitted nor denied the claims.

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Business

Goldman, Morgan Stanley Limit Losses With Fast Sale of Archegos Assets

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Goldman Sachs Group Inc. and Morgan Stanley were quick to move large blocks of assets before other large banks that traded with Archegos Capital Management, as the scale of the hedge fund’s losses became apparent, according to people with knowledge of the transactions. The strategy helped limit the U.S. firms’ losses in last week’s epic stock liquidation, they said.

Losses at Archegos, run by former Tiger Asia manager Bill Hwang, have triggered the liquidation in excess of $30 billion in value. Banks were continuing to sell blocks of stocks linked to Archegos Monday, traders said.

“This is a challenging time for the family office of Archegos Capital Management, our partners and employees. All plans are being discussed as Mr. Hwang and the team determine the best path forward,” a company spokeswoman said in a statement Monday evening.

Archegos took big, concentrated positions in companies and held some positions in a mix of stock and swaps. Swaps are a common arrangement in which a trader gets access to the returns generated by a portfolio of shares or other assets in exchange for a fee.

Losses threatened to spill over into the so-called prime brokerage businesses that have been handling the firm’s trading. The group of large Wall Street banks includes Goldman, Morgan, Credit Suisse Group AG, Nomura Holdings Inc., UBS Group AG and Deutsche Bank AG , said people familiar with the firm’s trading.

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