‘Unacceptable’: Credit Suisse reveals further mega losses from the disastrous Archegos trade

The stunning implosion of Archegos Capital Management, whose speculative bets roiled Wall Street, is now expected to cost Credit Suisse an even 5 billion francs ($5.5 billion), wiping out in one fell swoop five years of profits at its investment banking division.

Investors punished the stock, sending shares down 4.5% at the open Thursday in Zurich.

The scandal-plagued Swiss lender, which sold 203 million shares via mandatory convertibles on Thursday, said it had not yet fully unwound trades connected with Bill Hwang’s hedge fund and forecast further related headwinds of 600 million francs ($656 million) for the second quarter.

This comes on top of the 4.43 billion francs charge booked in the first three months of the year, pushing the group 757 million francs into the red, albeit less than initially feared.

Chief executive Thomas Gottstein called the losses generated by its New York prime brokerage operation “unacceptable” but blamed the opaque nature of Archegos for the problem.

“It’s clear that a family office like that did not disclose positions like a normal hedge fund would do,” Gottstein told reporters. “We will also learn from the regulators how other firms had managed.”

Echoes of long-term capital

At the end of last month, JP Morgan raised its forecast for the banking sector’s collective Archego losses to $10 billion. Rivals Nomura and [hotlink]Morgan Stanley[/hotlink] have estimated their respective hit to be a fraction of Credit Suisse’s, however.

“It is an exceptional event. I think the last time the industry has seen anything like this was LTCM in terms of its size and consequence,” Credit Suisse chief financial officer David Mathers told analysts on Thursday, referring to the collapse in the 1990s of hedge fund Long-Term Capital Management.

Despite an otherwise strong underlying Q1 performance in investment banking led by a surge in underwriting, Credit Suisse initiated a strategic review with the aim of slimming the division’s leverage and assets.

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