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.

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