David Herro and Bill Nygren Comment on Credit Suisse

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Sydnee Gatewood
Apr 13, 2021
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Credit Suisse (

CS, Financial) was a top detractor for the first quarter, following a series of negative headlines in March. Early in the month, the Switzerland-based financial services firm lost ~$2 billion $3 billion in market cap because a fund in its asset management division had exposure to the now-insolvent Greensill Capital. This market cap decline far surpassed Credit Suisse's direct exposure to Greensill and ignored the fact that a large portion of its clients' exposure was in cash, highly rated securities or insured investments. At the end of March, the company's share price dropped again when a New York-based hedge fund client, called Archegos, defaulted on its margin calls to Credit Suisse's prime brokerage business. As a result, Credit Suisse announced an expected charge of approximately CHF 4.4 billion and a first quarter 2021 pre-tax loss of approximately CHF 900 million. The company also provided updated profitability guidance that greatly exceeded analysts' estimates, although this news was largely overshadowed by the Archegos headlines. We are pleased with Credit Suisse's profitability improvements, excluding the charge, and we will continue to monitor the situation closely. We expect the company to make material changes to its risk management leadership in the wake of these events and we believe incoming Chairman Antnio Horta-Osrio will bring fresh perspective to Credit Suisse, given his impressive tenure as CEO of Lloyds Banking Group.Credit Suisse (CS, Financial) was a top detractor for the first quarter, following a series of negative headlines in March. Early in the month, the Switzerland-based financial services firm lost ~$2 billion $3 billion in market cap because a fund in its asset management division had exposure to the now-insolvent Greensill Capital. This market cap decline far surpassed Credit Suisse's direct exposure to Greensill and ignored the fact that a large portion of its clients' exposure was in cash, highly rated securities or insured investments. At the end of March, the company's share price dropped again when a New York-based hedge fund client, called Archegos, defaulted on its margin calls to Credit Suisse's prime brokerage business. As a result, Credit Suisse announced an expected charge of approximately CHF 4.4 billion and a first quarter 2021 pre-tax loss of approximately CHF 900 million. The company also provided updated profitability guidance that greatly exceeded analysts' estimates, although this news was largely overshadowed by the Archegos headlines. We are pleased with Credit Suisse's profitability improvements, excluding the charge, and we will continue to monitor the situation closely. We expect the company to make material changes to its risk management leadership in the wake of these events and we believe incoming Chairman Antnio Horta-Osrio will bring fresh perspective to Credit Suisse, given his impressive tenure as CEO of Lloyds Banking Group.



From

David Herro (Trades, Portfolio) and Bill Nygren (Trades, Portfolio)'s Oakmark Global Select Fund first-quarter 2021 commentary.



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I am the editorial director at GuruFocus. I have a BA in journalism and a MA in mass communications from Texas Tech University. I have lived in Texas most of my life, but also have roots in New Mexico and Colorado. Follow me on Twitter! @gurusydneerg