GENEVA (AP) — Switzerland’s financial markets authority said yesterday it is looking into possible penalties against Credit Suisse after the top-drawer bank announced “significant losses” linked to a United States (US)-based hedge fund.
The Swiss Financial Market Supervisory Authority (FINMA) said it will require “various risk-reducing measures” and investigate “possible shortcomings in risk management” at Credit Suisse. The authority said it is appointing an outside agent to look into the issue.
Two weeks ago, the bank announced it was taking a CHF4.4 billion charge linked to a default on margin calls by US-based Archegos Capital. Credit Suisse did not identify what it called only a “US-based hedge fund” — but the authority did.
The authority said such “enforcement proceedings” against financial institutions typically take months, depending on the complexity of the matter. FINMA does not have the power to impose fines, but can order changes within financial institutions and set limits on them.
A margin call is triggered when investors borrow using their stock portfolio as collateral and have to make up the balance required by banks when the share prices fall and the collateral is worth less.
FINMA also confirmed it opened in March proceedings against the bank in connection with its so-called “supply chain finance funds”, a financial instrument that is reserved for select clients.
The bank announced a suspension in redemptions and subscriptions in the funds on March 1 over insolvency issues linked to partner Greensill Capital.
FINMA’s announcement came shortly after Credit Suisse reported a net loss of CHF252 million in the first quarter, largely due to the one-time charge.
Chief Executive Officer Thomas Gottstein said, “The loss we report in this quarter, because of this matter, is unacceptable.” He noted steps including an independent probe ordered by the bank. The bank has also said two top executives had left in the wake of the troubles.