Credit Suisse has investors stumped on how it can pull off a loss of only $973 million after a $4.7 billion hit from Archegos. Financial wizard David Mathers has his work cut out for him.

David Mathers knows to put the best foot forward: one year, for a team of Credit Suisse investment bankers ranked in the top-five among its peers, the finance chief had t-shirts printed with the slogan, «number-one for clients that trade with us».

The episode illustrates Mathers’ mastery at finessing Credit Suisse's quarterly statements to convey the most flattering view. The 23-year veteran of the Swiss bank now faces the gargantuan task of pulling of a loss of «just» 900 million Swiss francs ($973 million) after a 4.7 billion franc wipeout on Archegos.

Mathematical Guessing Game

This has set off something of a mathematical parlor game among Credit Suisse observers at just how Mathers will pull this off. To its credit, the bank did have a blow-out first quarter before the dual carnage of first Greensill (March 1) and then Archegos (March 29). 

Credit Suisse said mid-February it had started «strong» into 2021, thanks to «substantial» lifts in clients’ activity. The Swiss bank is in the midst of the boom in special-purpose vehicles, or SPACs, which in the first three months eclipsed their 2020 total. It also did well in equity underwriting, which tends to feed follow-up trading business.

Less than one month later, the bank was already grappling with Greensill’s $10.1 billion fund implosion. CEO Thomas Gottstein told a brokerage conference that March had continued in the same healthy fashion. Less than two weeks later, Archegos had wiped that out and then some: Credit Suisse would swing to a pre-tax loss for the quarter.

Slashing Bonuses?

The 900 million franc loss disclosed by the Swiss bank implies a 3.5 billion franc profit, before either Archegos or Greensill hit. Not only is that a record quarter, it almost reaches the 3.47 billion francs Credit Suisse earned in all of 2020. Mission impossible for Cambridge-educated Mathers?

Credit Suisse watchers are expecting radical cuts to bonuses or postponing traditional accruals later into the year, and taking no provisions for Greensill at all (for now). Slashing bonuses is in keeping with what the bank’s regulator and investors will want this year, but will further deflate key talent Credit Suisse needs to navigate through the tumultuous coming months.

Finding «Fudges»

Even assuming these factors on top of a blow-out quarter, the numbers don’t add up – Credit Suisse is more than one billion francs short of its 900 million francs «goal». Mathers, who is the longest-surviving top Credit Suisse executive along with chief lawyer Romeo Cerutti, is likely to have found some «fudges,» like rolling back dud loan provisions, according to several analysts.

Mathers has more leeway than his counterparts at UBS in marking the value of its assets: Credit Suisse has traditionally kept a larger share of so-called Level 3 (unlisted, illiquid, most difficult to value) assets than the crosstown rival.

Allfunds Value

Credit Suisse also owns 18 percent of Allfunds, a fund distribution firm to which the Swiss bank sold its Investlab unit two years ago. Allfunds’s «momentous» pending listing could buoy the value of the Swiss bank’s holding in it. A spokesman for Credit Suisse declined to comment; the bank's quarterly report is due on April 22.

Analysts note that Credit Suisse’s first-quarter boom isn’t sustainable: the SPAC boom is showing signs of cooling. The Swiss bank is reportedly dramatically reducing its risk-taking, and Greensill and Archegos are likely to hurt its business prospects further out.

 Peter Hody contributed reporting