Credit Suisse faces hard questions after $1 billion write-downs

credit score Suisse (CSGN.S) chief govt Tidjane Thiam contacted the head of the Swiss financial institution's markets enterprise soliciting for greater information about the fourth-area outcomes on the buying and selling department, consistent with substances visible via Reuters.

-and-a-1/2 months and nearly $1 billion in write-downs later, investors, analysts and previous board participants are thinking why Thiam and his finance leader, David Mathers, have been stuck out by way of the scale of the department's illiquid trades -- positions that are not easy to sell out of.

The write-downs have compounded for credit score Suisse what has already been a difficult begin to 2016 for all funding banks, with its proportion charge down around 38 percent to this point this 12 months, considered one of the largest slides of all massive european lenders.

In January, Thiam, by then just over six months into his task as CEO of Switzerland's second-biggest bank, wondered whether credit score Suisse had gone too huge on some trades and addressed the problem with some other pinnacle executive.

"i'm wondering approximately absolutely the length of our stock in a number of activities," he told global Markets head Tim O'Hara on Jan. 25, consistent with the materials shown to Reuters on circumstance that no in addition info could be disclosed.

"You and that i want to speak about case through case the best inventory levels," Thiam said.

Thiam has said he and different senior bank officials were blind to the size of the positions behind the write-downs but that no trading limits had been breached or trades concealed.

In reaction to Reuters questions on the bank's danger management and the alternate among Thiam and O'Hara, a credit score Suisse spokesman reiterated those remarks.

"He handiest learned of the extent of the positions in January and took steps to address the scenario," the spokesman stated.

Thiam and O'Hara declined in addition touch upon Monday.

On Feb. 4 the markets department pronounced an adjusted pre-tax loss of 658 million Swiss francs ($686.35 million) for the sector, wherein credit Suisse racked up $633 million in write-downs on illiquid trades. A in addition $346 million in write-downs followed within the first zone as of March 11, the financial institution disclosed on March 23.

Now Thiam faces questions about the financial institution's danger controls and oversight by using senior management of a part of its markets business.

"Does it boost concerns? yes it does," said Andreas Venditti, an analyst at Swiss non-public bank Vontobel who fees credit Suisse's stock "keep".

a few humans acquainted with the Zurich-based totally bank's operations expressed marvel and scepticism that pinnacle management could be blind to such crucial details.

"If the CFO failed to recognize about it, then certain as hell the chief chance officer could have achieved, which means that everybody would have done," said one former board member of a credit score Suisse investment banking subsidiary. "it's hard to assume that no one knew approximately this stuff."

The credit Suisse spokesman declined to comment on who knew what and when.

ugly DUCKLINGS

round $six hundred million of the write-downs came from securitised merchandise -- which encompass collateralised mortgage obligations (CLOs) -- and distressed credit.

CLOs are programs of debt, regularly company loans, which might be prepare and bought on to buyers. They often provide excessive fees of return however the holders tackle most of the danger of loans being defaulted on. Distressed credit involves trading debt of groups that are close to or going through bankruptcy, every other high-danger high-praise strategy.

whilst he outlined his new approach for the bank in October, Thiam had referred to securitised merchandise and credit score as the " ugly ducklings".

but he said it was no longer a pinnacle precedence to address businesses consisting of these that require large quantities of capital once they have been generating high returns in worldwide Markets, one in every of credit score Suisse's two investment banking divisions.

In securitisation credit Suisse is one of the top 3 gamers via sales, in keeping with Coalition's funding bank league table, which additionally pegs credit Suisse as a pinnacle-six financial institution in terms of credit.

however by means of mid-March, Thiam decided to go out distressed credit and european securitised product buying and selling altogether.

Thiam advised analysts and newshounds that Mathers, leader financial Officer at credit Suisse, and many others on the bank had also been ignorant of the dimensions of the positions.

looking at the numbers in January, Thiam became for answers to O'Hara, international Markets head for the reason that an Oct. 21 restructuring, the substances seen by means of Reuters showed.

Thiam wanted to apprehend the fourth-zone performance, with a selected consciousness on December and move over, "day by day if essential", the sports and danger management choices taken.

After O'Hara despatched over a earnings and loss assertion in addition to a danger review, Thiam sought rationalization on a few leveraged finance deals signed at some stage in 2015 which had already published a cumulative loss of $87 million. He also wanted to higher apprehend the intent at the back of credit Suisse's massive presence in U.S. distressed debt buying and selling.

"I mentioned absolutely the degree of our CLO exposures," Thiam said. "it will likely be vital to make certain that these exposures do no longer growth going ahead and apprehend their potential impact on Q1 if marketplace conditions do not improve. This last point is in reality legitimate for all the goods."

O'Hara agreed that inventory changed into too high, announcing credit Suisse's trading desks have been looking to get positions down wherein they may with out disrupting the market.

credit score Suisse has decreased its exposure to troubled credit from $2.9 billion on the stop of December to $2.1 billion by mid-March, even as its U.S. CLO exposure went from $zero.eight billion to $0.3 billion.

UNWELCOME DISTRACTION

Thiam said in March that "a number of human beings" had paid effects for him being unaware of these buying and selling positions, and that part of the issue become that buying and selling limits have been continuously raised, letting traders take large positions.

credit Suisse's illiquid funding restriction is authorized through its hazard committee, according to the financial institution's Organizational recommendations and guidelines report dated June 2014.

Limits for exposures wherein the danger profile changes more occasionally, as with illiquid investments, are monitored on a monthly basis, the bank said in its 2015 annual record.

even as Thiam stated the trouble changed into in the difficulty financial institution's structures and trading limits, credit score Suisse Chairman usaRohner supplied another clarification, telling a conference there has been a problem over how the property were valued, traded and controlled.

The write-downs are an unwelcome distraction as Thiam, 53, embarks on credit score Suisse's largest revamp in a decade.

They comply with a $2.6 billion agreement and a responsible plea for its non-public banking having helped wealthy people keep away from tax, in may additionally 2014, greater than a year before Thiam, a former Ivory Coast authorities minister, joined credit score Suisse from British insurer Prudential (PRU.L).

Thiam desires to pare again credit Suisse's investment financial institution and cognizance on wealth management. His approach, which included a new management structure and elevating about 6 billion francs in clean capital, has obtained a lukewarm response from markets.

In March, credit score Suisse announced 800 million Swiss francs in additional fee cuts and plans to reduce its funding bank further. The marketplace welcomed price cuts however many are nevertheless looking forward to the turnaround efforts to take hold.