Credit Suisse Group AG's third-quarter earnings were overshadowed by the continuing toxic effects of its dealings with Archegos Capital and Greensill Capital (UK) Ltd., a fraudulent loan to Mozambique and a corporate spying scandal.
Over the past year, the bank has reported $5.5 billion in losses following its dealings with hedge fund Archegos. It is being sued by more than 1,000 wealthy clients who invested in its now-frozen $10 billion supply chain finance funds connected to collapsed supply chain finance firm Greensill Capital. It has also been fined $475 million by regulators over its role in a corruption scandal connected to Mozambique's tuna fishing industry as well as censured by regulators in Switzerland for spying on its own executives.
Following the arrival of António Horta-Osório as chairman in April, the bank on Nov. 4 announced a restructuring aimed in part at putting its recent woes behind it.
"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.
Credit Suisse's own report into the scandals published earlier this year blamed a focus on maximizing short-term profits and enabling "voracious risk-taking" by Archegos for its troubles.
The bank will close much of its prime brokerage business that dealt with hedge funds including Archegos, will pare back its investment banking operations and will focus on building its wealth management business.
Credit Suisse took a total of CHF564 million as a charge with respect to major litigation provisions in the third quarter and said a significant component of this regards the "Mozambique matter," as the bank referred to it.
The bank said it was very focused on recovering as much of its loss as possible in relation to Archegos, and it saw a gain of CHF235 million in the quarter partly as a result of clawbacks from previously granted bonuses.
It reported a net income attributable to shareholders of CHF434 million, 21% lower than that recorded for the same period last year, equating to a return on tangible equity of 4.5%. Credit Suisse said it expected to report a net loss in the fourth quarter as it writes off its investment bank-related goodwill with a one-off charge of about CHF1.6 billion. The bank said it had no further visibility on any other operational risk charges relating to Archegos or Greensill.
On its investment banking operations, CEO Thomas Gottstein said the outlook was promising for the capital-light business, which will be structured as a global investment banking organization that will include Asian and Swiss teams.
"I think we have a decent pipeline for the fourth quarter, both across M&A and capital markets," he said in a conference call to discuss earnings. He also said the bank is "fully focused" on hiring.