Monthly Archive: March 2016

Distressed Debt at CS

Credit Suisse Group AG Chief Executive Officer Tidjane Thiam said the firm’s traders had ramped up holdings of distressed debt and other illiquid positions without many senior leaders’ knowledge, helping lead to a first-quarter loss in the markets business.

“This wasn’t clear to me, it wasn’t clear to my CFO and to many people inside the bank” when the firm laid out a strategy in October, Thiam said Wednesday in a Bloomberg Television interview. “There needs to be a cultural change because it’s completely unacceptable,” adding that there had been “consequences” for some employees.

The bank’s holdings of distressed debts, leveraged loans and securitised products, including collateralised loan obligations, triggered $258 million of writedowns this year through March 11, after $495 million of losses in the fourth quarter, according to a presentation. The bank said it sold off a quarter of its distressed holdings and more than half of its CLO positions and is exiting some of those businesses.

Trading revenue may drop 40 percent to 45 percent in the first quarter, the bank said. The drop could have been worse, as Thiam said he found out about the positions in January and moved to limit the damage. If he had known the extent of the issues in October, the plans he laid out at that time would have been affected, he said.

“A lot of the problems in the investment bank have been that people have been trying to generate revenue at all costs,” Thiam said in a Bloomberg television interview. “People were reluctant to reduce it because it would’ve exposed their cost problem.”

[Source: Bloomberg, March 23, 2016]