Credit Suisse Archegos report cites risk management failings

Credit Suisse on Thursday published the findings of an investigation into its relationship with collapsed US hedge fund Archegos, which found a failure to manage risk effectively at Switzerland’s second biggest bank.

The independent external investigation, conducted by US law firm Paul, Weiss, Rifkind, Wharton & Garrison, was commissioned following the implosion of Archegos at the end of March, which cost Credit Suisse some $5.5 billion.

Already hit earlier in the month by the bankruptcy of the British finance firm Greensill, Credit Suisse was rocked again by the collapse of Archegos which had been unable to reinject money to cover its positions in derivatives, triggering a mass sell-off of shares on Wall Street.

While many banks were affected, including the Japan’s Nomura, Credit Suisse took the hardest knock.

The independent investigation conducted more than 80 interviews with current and former Credit Suisse employees, while the review ploughed through more than 10 million documents.

The probe “found a failure to effectively manage risk” in the investment bank’s prime services business, Credit Suisse said.

In the same business, it found a failure to control limit excesses “as well as a lack of prioritisation of risk mitigation and enhancement measures”.

However, the investigation also found that this was “not a situation where the business and risk personnel engaged in fraudulent or illegal conduct or acted with ill intent”.

– ‘Culture of personal responsibility’ –

“While the bank has already taken a series of decisive actions to strengthen the risk framework, we are determined to learn all the right lessons and further enhance our control functions to ensure that we emerge stronger,” said Credit Suisse chairman Antonio Horta-Osorio.

“We are committed to developing a culture of personal responsibility and accountability, where employees are, at heart, risk managers; know exactly what they must do; escalate any concerns; and are responsible for their actions,” he said.

The Portuguese banker, who built a solid reputation in having turned around British bank Lloyds, took over at Credit Suisse in late April, pledging to make risk management an immediate priority.

The bank has already taken sanctions against 23 people, including the dismissal of nine people and financial penalties including the cancellation of bonuses and the clawback of previously paid amounts.

The bank will provide further details once the annual accounts are closed.

Credit Suisse published its second quarter financial results alongside the report.

Net profits fell by a worse than expected 78 percent as the bank was weighed down by its investment banking division.

The bank’s net profits were down to 253 million Swiss francs ($279 million, 235 million euros) from the 1.2 billion Swiss francs posted for the second quarter of 2020.

“Our underlying business performance remains solid,” insisted Credit Suisse chief executive Thomas Gottstein.