(Bloomberg) — S&P Global Ratings downgraded its outlook on Credit Suisse Group AG to negative from stable, as the fallout from the Archegos Capital Management crisis impacts the Swiss bank’s debt and shares.
Credit Suisse is one of the most exposed banks to the family office of former hedge fund manager Bill Hwang, with potential losses from the unwinding of positions running into the billions of dollars, according to people with knowledge of the matter. According to JPMorgan Chase & Co, the numerous lenders involved may see total losses in the range of $5 billion to $10 billion.
“The incident raises questions about the quality of risk management, the group’s risk appetite, and adequacy of the risk-return profile,” the rating agency said in a statement late Tuesday. S&P kept its BBB+ long-term rating for Credit Suisse’s holding company and the A+ rating for its central operating bank unit.
The Arches hit is the latest in a series of writedowns and scandals for Credit Suisse Chief Executive Officer Thomas Gottstein that seem to occur at ever shorter intervals. The bank is also gauging the financial impact of the Greensill Capital collapse earlier this month.
Credit Suisse fell about 2% as of 10:10 a.m. in Zurich trading on Wednesday, taking its losses for the week to about 18% after the bank had warned on Monday that it faces “highly significant” losses related to Arches.
Its bonds also tumbled on Tuesday, and the cost to protect its debt against default climbed to the highest since mid-2020. According to Trace, the spread over Treasuries for the Swiss bank’s 4.875% dollar bonds due in 2045 widened 8.5 basis points, among Tuesday’s worst performances in the investment-grade market.
While Credit Suisse’s impact from Archegos also has yet to be entirely determined, it’s potentially facing the most considerable losses among the central banks from the unwinding of positions, along with Japanese lender Nomura Holdings Inc. Mitsubishi UFJ Financial Group Inc. has also flagged losses. However, other lenders to the family office — such as Goldman Sachs Group Inc. and Deutsche Bank AG — cut their exposure with no or only immaterial damage.