Finma add-on inflates Credit Suisse’s credit RWAs

The Sfr5.8 billion additional capital buffer accounts for two-fifths of bank’s quarterly increase

Credit Suisse’s credit risk-weighted assets (RWAs) increased by Sfr13.7 billion ($15.2 billion) in the first quarter, after the Swiss regulator imposed a temporary add-on in response to the Archegos Capital blowout.

Credit RWAs hit a 12-month high of Sfr148.4 billion at end-March, up 10% from the previous quarter. Just over two-fifths of the quarterly increase was due to the additional capital buffer of Sfr5.8 billion imposed by Finma.

 

 

The bank’s credit RWAs calculated under the regulator-set approach rose 30% quarter on quarter to Sfr34.2 billion. It now accounts for 23% of Credit Suisse’s total capital requirements for credit risk. Exposures assessed under the bank’s own models rose 5% over the period, with their share of total requirements falling to 73%. 

As a result of higher RWAs for credit, market and operational risk, Credit Suisse’s Common Equity Tier 1 (CET1) ratio slipped to 12.2% from 12.8%. Without the Finma add-on, the ratio would have been 12.4%.

What is it?

Swiss capital rules oblige top banks to maintain a minimum CET1 leverage ratio of 1.5% and a buffer of 2%, for an all-in requirement of 3.5%.

Credit Suisse’s risk-based capital requirement under Swiss rules consists of a 4.5% minimum of CET1 capital to RWAs, plus a 5.5% buffer and 0.021% countercyclical capital buffer, for an all-in amount of 10.02%.

Why it matters

Finma’s punitive measure will be lifted once Credit Suisse fully rids itself of residual positions vis à vis Archegos. The bank said it expects this to happen by the end of the second quarter, having already exited 98% of the related positions in Q1.

Other lenders who were embroiled in Bill Hwang’s hyper-leveraged bets are already ahead of the Swiss bank. Morgan Stanley told investors during the first quarter’s earnings call it had exited all Archegos positions by March-end, while Nomura said in mid-May it had completed its own unwinding.

Credit Suisse’s comparative slowness likely reflects the extent of the damage it suffered. Nomura escaped the Archegos saga with a total hit of $1.2 billion. At the Swiss bank, losses topped Sfr4.4 billion in Q1 alone, and managers expect another Sfr600 million charge this quarter.

The multi-billion hemorrhage, however, may well be worth freedom from Finma’s add-on.

Get in touch

Like Risk Quantum? Sign up for free to our daily newsletter.

If you have any thoughts on our latest analysis or want to suggest other ways to present and analyse the data, you can email us or send a tweet to @RiskQuantum. Or both, we won't mind.

Tell me more

UniCredit cut RWAs the most of EU systemic banks in Q1

ANZ expanded credit model in Q1

ECB’s models review heaped €275bn of extra RWAs on banks

View all bank stories

  • LinkedIn  
  • Save this article
  • Print this page  

Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.

To access these options, along with all other subscription benefits, please contact [email protected] or view our subscription options here: http://subscriptions.risk.net/subscribe

You are currently unable to copy this content. Please contact [email protected] to find out more.

You need to sign in to use this feature. If you don’t have a Risk.net account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here: