Troubles multiply for Credit Suisse CEO; Coinbase set to go public

Receiving Wide Coverage ...

A whale of a mess

“There are some striking parallels” between the London Whale debacle, “where JPMorgan Chase managed to lose $6.2 billion betting with credit derivatives” in 2012, and the blow up of Archegos Capital Management, in which “lenders led by Credit Suisse and Nomura have lost billions after the bets soured last month.”

“In both cases, after only a little dithering, there has been significant internal accountability,” the Financial Times writes. “JPMorgan clawed back bonuses, fired four London traders and accepted the resignations and retirements of other senior staff. Credit Suisse — which is simultaneously dealing with its costly mistakes over Greensill Capital — announced last week that seven heads would roll, including the heads of risk management and investment banking.”

Thomas Gottstein “was widely regarded as a safe pair of hands who would steady the ship” when he was named Credit Suisse CEO last year, the FT says. “But Gottstein’s tenure has so far been anything but low key. This week Credit Suisse admitted to a $4.7 billion loss from the collapse of Archegos, after it lent billions of dollars to the family office and its risk controls were found wanting. Deepening Gottstein’s problems, Credit Suisse may have also lost some of its key ultra-wealthy clients up to $3 billion in funds run by Greensill Capital.”

“Both incidents marked a far cry from Gottstein’s pledge to start 2021 with a ‘clean slate.’ They have once again thrust Credit Suisse center stage and drawn questions over the competency of its CEO — barely a year after his battlefield promotion. Multiple internal and regulatory probes loom.”

Credit Suisse faces a quandary over what to do about its investment bank, which earned enough in the first quarter to reduce the group’s overall pretax loss to about $1 billion, the Wall Street Journal says. “Its investment bank, which takes on more risk, has been its profit engine, making up for its larger, slower-growing wealth-management business. But now it is expected to be scaled back for safety.”

As if that weren’t enough to deal with, “the U.S. brokerage subsidiary of Credit Suisse has disclosed that former employees’ personal data was leaked last month and that it had filed a lawsuit over the matter, in the latest snafu for the Swiss banking giant,” Reuters reported. “Credit Suisse Securities has sued one or more individuals for sending private information about former employees to media outlets, law enforcement and former employees via a March 20, 2021 email.”

“The data was sent from a fake Gmail account in Gottstein’s name. It included the former employees’ addresses, social security numbers and bank account details, among others. It did not disclose how many former employees were affected by the leaked data. Credit Suisse said its investigation to date has determined that the defendants may be one or more former employees.”

Wall Street Journal

Boom or blip?

Coinbase Global “is gearing up for what investors expect to be a blockbuster stock-market debut, though doubts persist about its lofty valuation,” the Journal says. “Coinbase plans to go public Wednesday through a direct listing on Nasdaq. The company, which runs the largest U.S. exchange for bitcoin and other digital currencies, could achieve a bigger market capitalization than any of the world’s traditional exchange operators. But it faces a number of threats, including competition in the fast-evolving cryptocurrency industry, that could undermine its stock price in the long run.”

“Based on the price of Coinbase shares in private-market trading earlier this year, the company is worth $91.5 billion on a fully diluted basis. And Coinbase reached that valuation even before releasing blowout results for the first quarter, when it benefited from a huge rally in the price of bitcoin. The conundrum facing investors is whether those results are a harbinger of what’s to come, or just a blip.”

Diving defaults

“Defaults by low-rated U.S. companies have fallen to their lowest level in 10 months, helping to extend sharp rallies in the markets for junk bonds and floating-rate loans. Defaults for an index of speculative-grade loans to U.S. companies over the past year fell to 3.15% as of March. That is the lowest level since last April and down from the measure’s 10-year peak in September at 4.17%.”

“The decline in defaults has helped fuel a strong recovery in the prices of markets that initially were hammered by the Covid-inspired flight from risk. Loan prices are also rising.”