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Credit Suisse loses ground in prime broking after the explosion of Archegos

Credit Suisse lost ground to rival banks by winning new business for its blue chip brokerage unit this year, after suffering a $ 5.5 billion loss on credit to Bill Hwang’s Archegos family office and be committed to reducing risks in its business.

So far in 2021, Credit Suisse has gained around 2.5% of new hedge fund clients served by prime brokers, behind an average of 5.5% for the previous six years, according to data compiled by Preqin for the Financial Times.

Credit Suisse has signed so far this year four of the 156 new hedge funds served by the big banks. This has seen Credit Suisse slide in the prime brokerage rankings of new hedge funds served from sixth in 2020 to ninth in 2021, according to data from Preqin, which tracks the alternative asset management industry.

The figures underline the impact on Credit Suisse of the explosion in March of Archegos, which managed the family wealth of former hedge fund manager Bill Hwang. Credit Suisse declined to comment.

In April, Thomas Gottstein, chief executive of Credit Suisse, told investors that the bank’s brokerage and principal funding activities would be “resized and reduced in risk” following the losses of Archegos.

“By the end of 2021, we plan to reduce investment bank leverage exposure by at least $ 35 billion and align risk-weighted assets to end-2020 levels. to the maximum, ā€¯Gottstein said.

Blue-chip brokerage divisions cater to hedge funds and high net worth clients by offering them a range of services including stock lending, leverage and trade execution.

Carried out on a large scale, it is considered one of the most lucrative areas of investment banking. JPMorgan analyst Kian Abouhossein estimated that Credit Suisse generated $ 900 million in revenue last year from the unit.

Several Wall Street banks, including Goldman Sachs, Morgan Stanley and Nomura, provided top-notch brokerage services to Archegos, but Credit Suisse suffered the biggest losses by far.

The bank said the sale of shares associated with Archegos cost it more than $ 5 billion. By comparison, Nomura lost nearly $ 3 billion, Morgan Stanley suffered a hard blow of $ 911 million, while Goldman Sachs largely escaped unscathed.

Since then, Credit Suisse has reshuffled the leadership of its blue chip brokerage unit, with the resignation of John Dabbs and Ryan Nelson, the Financial Times reported in April. Brian Chin, head of investment banking at Credit Suisse, and Lara Warner, head of risk and compliance, have also left the bank.

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