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Credit Suisse, Burned By Archegos And Greensill Scandals, Shifts Focus To Wealth Management In Overhaul

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Topline

Investment banking giant Credit Suisse is undergoing a $440 million reorganization, dropping its prime brokerage unit and reducing its investment banking services after vast losses tied to the collapse of both hedge fund Archegos and financial services firm Greensill, and a number of scandal-linked penalties.

Key Facts

In its earnings Thursday, the Swiss bank said it will focus on its wealth management business, following a 9% year on year rise in assets under management, totaling $923 billion (843 billion Swiss Francs).

Credit Suisse saw pre-tax income of 1 billion Swiss francs in the third quarter ($1.09 billion), while profits fell 21% on the same period in 2020, to 434 million Swiss francs ($475 million).

The bank’s restructuring will see it split into four units from next year: Asset management, wealth management, the Swiss bank and the investment bank, Bloomberg reports.

Credit Suisse, a creditor for failed Greensill Capital, suffered more reputational damage when the Australia and U.K.-based financial services firm folded, driving the bank to freeze billions in investment funds, while the bank was also fined $475 million over a corruption scandal involving Mozambique’s “tuna bonds”.

The restructuring is set to happen over three years, according to the WSJ.

Key Background

Burned by the back to back scandals, newly appointed Credit Suisse Chairman Antonio Horta-Osorio in April announced the bank’s overhaul. Credit Suisse was one of the worst-impacted banks, with other big hitters such as Morgan Stanley and Nomura also reporting billions in losses from the implosion of Archegos. Wall Street in total recorded more than $10 billion in losses linked to the little-known and secretive New York-based hedge fund. The crisis was triggered after Archegos defaulted on margin calls, triggering a $30 billion fire sale of media and entertainment companies that it had invested in. 

Further Reading

The Firm Behind The $30 Billion Firesale Shaking Financial Markets Disclosed Almost Nothing (Forbes)

Credit Suisse Revamps Business in Post-Archegos Overhaul (Forbes)