Credit Suisse Bank.
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LONDON – Credit Suisse on Monday warned of a "highly significant" slump in its first quarter results after starting exiting positions in a large US hedge fund that defaulted on margin calls last week.
In a trading update prior to the market opening, the Zurich-based lender announced that a number of other banks were also affected and had begun to leave their positions with the unnamed company.
Credit Suisse shares fell over 13% at lunchtime after the announcement.
"While it is premature at this point to quantify the exact size of the loss from this exit, it could be very significant and material to our first quarter results despite the positive trends announced in our trade balance earlier this month." , so Credit Suisse said.
The bank added that it would provide another update on the matter "in due course".
A margin call occurs when a broker demands that an investor deposit more money into a margin account (which allows them to put money borrowed from the broker) in order to bring it down to a minimum required amount. The investor must then either pay into the account or sell part of the assets held in it.
Nomura issued a trading update on Monday warning of a "significant loss" at one of its US subsidiaries as a result of transactions with a customer in the US. Japan's largest investment bank said it was assessing the potential scale of the loss, which is estimated at $ 2 billion. Their stocks fell over 16% on Monday.
"This estimate may change depending on how transactions are conducted and fluctuations in market prices," the bank said.
"Nomura will continue to take the appropriate steps to address this issue and make a further disclosure once the impact of the potential loss is determined."
It is because Archegos Capital Management was forced to liquidate positions late last week. The moves of the billionaire U.S. family office founded by former Tiger Management stock analyst Bill Hwang sparked a wave of selling pressure on Friday, with U.S. media stocks and Chinese Internet ADRs taking the brunt.
Although Credit Suisse and Nomura did not name the fund, it has been widely reported that Archegos Capital Management is the firm associated with the fire sale.
A trader who wanted to remain anonymous told CNBC over the weekend this Credit Suisse – Together with Goldman Sachs, Morgan Stanley and Deutsche Bank, Archegos had to liquidate a number of positions.
CNBC reached out to Archegos Capital, but calls and emails were not returned.
Troubled times for Credit Suisse
The latest developments have been recorded for Credit Suisse in a turbulent 18 months. Earlier this month, the bank announced a restructuring of its wealth management business and a suspension of bonuses to contain the damage from the collapse of UK supply chain finance firm Greensill Capital.
Credit Suisse's wealth management unit held $ 10 billion in corporate funds and found that some investors had threatened legal action.
Meanwhile, in February 2020, former CEO Tidjane Thiam resigned after a spy scandal that gripped the bank in 2019. Thiam claimed he was unaware of the surveillance of two former colleagues, including the late asset management chief Iqbal Khan.
Bank of America downgraded Credit Suisse shares to "neutral" on Monday and lowered its profit and buyback forecasts for 2021 by 500 million Swiss francs (533 million US dollars).
Analysts suggested that this recent setback "may be too big a problem for the company to see through the normal course of business."
"After the series of issues the group has faced over the past several months with Greensill, mortgage-backed securities litigation and a hedge fund write-down, we believe that its capital cushion has likely been reduced to the point where its buyback was directly affected is "they said added.