Credit Suisse loses ground in prime broking after Archegos blow-up

Credit Suisse has lost ground to rival banks in winning new business for its prime brokerage unit this year after suffering a $5.5bn loss on credit extended to Bill Hwang’s Archegos family office and pledging to scale back risk.

The bank has won about 2.5 per cent of new hedge fund clients served by prime brokers in 2021, lagging behind a 5.5 per cent average for the previous six years, according to data compiled by Preqin for the Financial Times.

Credit Suisse has signed up four of the 156 new hedge funds served by big banks this year, slipping in the prime brokerage league tables in terms of the number of new hedge funds served from sixth in 2020 to ninth in 2021, according to the data from Preqin, which tracks the alternative asset management industry.

The figures underscored the impact on Credit Suisse of the blow-up 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, Credit Suisse chief executive, told investors that the bank’s brokerage and prime financing businesses would be “resized and de-risked” in the wake of the Archegos losses.

“By the end of 2021, we plan to reduce the investment bank leverage exposure by at least $35bn, and to align the risk-weighted assets to no more than the end of 2020 levels,” Gottstein said.

Prime brokerage divisions cater to hedge funds and wealthy clients offering a range of services including stock lending, leverage and trade execution.

Done at scale, it is considered one of the more lucrative areas of investment banking. Kian Abouhossein, JPMorgan analyst, has estimated that Credit Suisse earned $900m in revenues last year from the unit.

Several Wall Street banks, including Goldman Sachs, Morgan Stanley and Nomura, also provided prime brokerage services to Archegos, but Credit Suisse suffered by far the heaviest losses.

The bank has said the sale of stock associated with Archegos cost it more than $5bn. By comparison, Nomura lost almost $3bn, Morgan Stanley suffered a $911m hit, while Goldman Sachs escaped largely unscathed.

Since then, Credit Suisse has shuffled the leadership of its prime brokerage unit, with John Dabbs and Ryan Nelson stepping down, the FT reported in April. Brian Chin, head of investment banking at Credit Suisse, and Lara Warner, chief risk and compliance officer, have also left the bank.