Credit Suisse ponders by replacing the chief risk in an impending executive balance sheet

Credit Suisse Group AG leaders are discussing the replacement of risk director Lara Warner, while saving CEO Thomas Gottstein while calculating losses that could reach billions with the collapse of Archegos Capital Management, according to people informed on the matter.

The bank is expected to provide investors with an update on the consequences of Archegos, including the fate of top executives like investment bank president Brian Chin, two people said. They also said that the Swiss firm is planning a review of its main brokerage business, which is hosted by the investment bank.

“I think it’s unfair at this stage to put that on Mr. Gottstein,” said David Herro of Harris Associates, a major shareholder in the bank, in an interview with Bloomberg TV last week. “He tried and has tried to reorganize Credit Suisse, but Rome was not built in a day. Unless we see evidence to the contrary, I think he is the right person to continue to lead the organization. “

A Credit Suisse spokesman declined to comment.

Read more: How Credit Suisse is preparing for impressive losses that are likely to reach billions

The second Swiss bank is one of the biggest potential losers in the Archegos collapse, which could cost banks a collective $ 10 billion, analysts at JPMorgan Chase & Co. estimate. This happened just weeks after the collapse of Greensill Capital, a financial institution that managed the funds that Credit Suisse offered to its asset management clients.

The double blow has made Credit Suisse the world’s worst performing bank stock in the world so far this year, as a strong start to its investment banking business has been overshadowed by the bank’s exposure to Greensill and Archegos, a family office headquartered in New York .

The bank’s repurchase program of 1.5 billion Swiss francs ($ 1.6 billion) is in danger of being stopped for the second time – after it was stopped at the start of the pandemic last year – and losses can pressure the payment of dividends. S&P Global Ratings downgraded its outlook for the bank from stable to negative, pointing to risk management concerns.

A blow to earnings in excess of $ 5 billion would begin to put pressure on Credit Suisse’s capital position, according to JPMorgan. Swiss regulator FINMA increased Credit Suisse’s requirements under its Pillar 2 buffer, after the bank warned it could incur losses by closing supply chain financing funds linked to Greensill.

Here are the Credit Suisse leaders who will be at the heart of the action in the coming days and weeks:

Thomas Gottstein, CEO

The surprise choice to take control in February 2020, after a espionage scandal that ousted Tidjane Thiam, Gottstein previously led the bank’s business in Switzerland. When he got the job, he declared it was “time to look forward”, but Credit Suisse’s problems have only metastasized since then.

First, there was a $ 450 million write-off of the bank’s stake in the York Capital hedge fund and the costs related to a long-standing legal case on residential mortgage-backed securities.

Then, Greensill’s supply chain financing business exploded. Management and regulators are investigating how Credit Suisse’s supply chain financing funds, linked to the Greensill business, were sold to investors, including their own wealth management clients, and how the bank managed conflicts of interest and their relationship with Greensill, Bloomberg News reported.

The Archegos episode raises questions about its control over risk management, especially since one of its first major initiatives was to unite the risk and compliance divisions to streamline and improve risk decision-making.

“Risk controls are not yet where they should be,” said Herro. “Hopefully, this is a wake-up call to accelerate the necessary cultural change in this company.”

Lara Warner, Risk and Compliance Officer

With dual Australian-American nationality and a career ranging from equity analyst to chief financial officer of investment banking, Warner has followed a less traditional path than many of his colleagues to the highest echelons of risk management and executive board at Credit Suisse . She was the most prominent member of Thiam’s inner circle to win a place in Gottstein’s top positions. His promotion to head of risk and compliance came in the remodeling that saw the two units combined.

She is facing some of the same difficult questions as Gottstein about risk and culture management practices after her personal involvement when signing a loan for Lex Greensill in October.

In a banking area run primarily by men steeped in risky models, their more business-focused approach has not always worked, according to conversations with about half a dozen current employees and former employees who spoke on condition of anonymity. Several left after she took over, while those who stayed were challenged to become more involved with the business, according to people who worked with her.

“For the good pieces of Credit Suisse to flourish, it is necessary to get rid of the bad pieces and this is the risk control that has plagued this company for almost a decade,” said Herro.

Brian Chin, Investment bank CEO

Along with Warner, Chin was a big winner in Gottstein’s jolt last summer, when the chief commercial officer also gained control of the investment bank after the merger of the two units.

His promotion – at least in part – was due to a turnaround in fortunes in global markets during the latter part of the Thiam era. Now, his business is under intense pressure because of Archegos’ losses.

Emissaries from several of the world’s largest stockbrokers tried to avoid chaos before the drama hit the public last Friday. Credit Suisse’s idea was to arrive at a kind of stoppage to find out how to relax positions without causing panic, according to people with knowledge of the subject.

This strategy failed, prompting banks to start selling. Credit Suisse and Nomura issued profit notices on Monday. At the end of the day, Gottstein and Chin made a call with managing directors and other executives in shock, where they said the lender was still working on figuring out the size of the success and told bankers that it was a time to come together and not focus on the potential impact on pay.

Paul Galietto, head of stock trading

Galietto joined Credit Suisse in 2017 after a stint at UBS Group AG and a two-decade stint at Merrill Lynch & Co. He headed Credit Suisse’s main brokerage unit before moving up to lead the stock trading division two years ago years old.