Securities finance industry news | Credit Suisse to refer hedge funds to BNP Paribas following prime services closure

Credit Suisse has confirmed an arrangement with BNP Paribas to support its prime services and derivatives clearing clients in finding an alternative service provider.

This follows news last week that Credit Suisse will cease to offer prime services, with the exception of its Index Access and APAC Delta One services, from January 2022.

The bank’s prime services division embraces its prime brokerage and prime financing sub-units.

Credit Suisse’s referral arrangement with BNP Paribas aims to ensure a smooth migration of client business to alternative service providers. “Should customers seek to benefit from the referral agreement between Credit Suisse and BNP Paribas, there will be a streamlined process in place to facilitate them obtaining prime services from BNP Paribas under its terms,” says a statement from the Switzerland-based bank.

Credit Suisse’s announcement that it is withdrawing most of its prime services functions follows heavy financial losses, totalling close to US$5.5 billion, that it suffered following the default of Archegos Capital Management in March 2021.

A 170-page report by a Credit Suisse Group special committee makes penetrating and highly-critical observations on the engagement of the investment bank, and particularly its prime services division, in the run up to the hedge fund’s collapse in March 2021.

This was preceded by losses of US$214 million that Credit Suisse suffered in March 2020 following the default of Malachite Capital Management, another hedge fund which was a client of Credit Suisse’s equity finance division.

This report, and the circumstances leading to the Archegos default, have been analysed in detail in Securities Finance Times in SFT Issue 284, published on 17 August 2021, and in SFT Issue 289, published on 26 October.

A statement by Credit Suisse chief executive Thomas Gottstein highlights a series of measures that the organisation is taking to strengthen the bank and to improve its risk management leadership.

This includes the appointment of Rafael Lopez Lorenzo as chief compliance officer and David Wildermuth as chief risk officer. It also includes the appointment of experienced senior risk officers across divisions and steps to clarify roles, responsibilities and accountability across divisions.

Within the investment bank, Credit Suisse will terminate most of its prime services activities and will reduce its structured long-duration derivatives book.

Considered together, Credit Suisse predicts that these actions are likely to deliver a 25 per cent capital reduction from 2020 levels by next year (p 15).