Finance Minister Ueli Maurer spoke about the latest Credit Suisse scandal at a media conference on hardship aid. The big bank is likely to suffer billions in losses from transactions with the Archegos hedge fund.
When asked whether he was in contact with the supervisory authority in the case, the finance minister replied: “Finma will guide us”. He currently does not have more information than can be found in the media, but Maurer emphasized: “It is Finma’s turn.”
Finma itself stated on request: “We are aware of this international hedge fund case in which various banks and financial centers are involved internationally. Finma has been informed by the bank and is in contact with the bank as usual on such matters ». The Swiss National Bank did not want to comment. She is also responsible for financial stability.
Scratches on the image
Maurer sees the banks’ bonus culture as a cause of the scandals: the risk is that the “bonuses of certain people are relatively high,” said the Federal Council. “And then you take risks,” continued Maurer. But this is his personal opinion.
In other words, the finance minister fears that bankers will continue to take too great risks in order to boost the bank’s income and thus their own bonuses. You have to look at this, says Maurer.
What went wrong
In the case of Archegos Credit Suisse provided the Archegos hedge fund with billions of dollars to finance high-risk speculation. Blocks of shares from media companies such as ViacomCBS served as collateral for the loans. Their shares fell sharply in value, however, because the company had raised fresh money to invest in streaming content.
As a result, however, the security for the loans lost value and Credit Suisse, as well as the other lending banks, have therefore requested new collateral from Archegos. However, the hedge fund was unable to deliver this in view of its scarce own funds. At the beginning, according to the “Financial Times”, the banks tried to coordinate the sale of the shares, but that failed. In the end there was a race to see who would be the first to put his blocks of shares, which were used as collateral, on the market. These distress sales exacerbated the price losses of these stocks even more.
US homes can cope better with losses
According to media reports, Goldman Sachs was able to completely sell its positions in shares last week. It is unclear how many shares Credit Suisse has already sold and how big the resulting loss will be in the end. If the bank still has a block of shares, it is now worth less. This book loss also weighs on the quarterly profit. In Big Bank wants to provide timely information on further details.
Bank experts are calling for consequences: “Credit Suisse has to take another look at investment banking,” says Andreas Venditti, bank analyst at the private bank Vontobel. “It cannot be that a single case causes a loss that is potentially as great as the Archegos case now.”
According to reports, US competitors such as Morgan Stanley and Goldman Sachs have also lost billions as a result of the emergency sales. But according to previous estimates, their losses should not only be lower than at Credit Suisse, the US houses also have considerably thicker capital reserves.
Morgan Stanley, for example, has $ 90 billion in equity, more than twice as much as Credit Suisse. While the risk-weighted capital cushion at Credit Suisse at the end of 2020 was 12.9 percent of total exposure, the five largest US banks averaged 13.9 percent.
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