Credit score Suisse flags $450 million impairment on York Capital Administration stake

© Reuters. FILE PHOTO: Logo of Swiss bank Credit Suisse is seen Zurich

By Brenna Hughes Neghaiwi

ZURICH (Reuters) – Credit Suisse (SIX:) expects to take a roughly $450 million impairment on alternative investment firm York Capital Management’s retreat from its core hedge funds business, the Swiss bank said.

The Wall Street Journal on Monday reported the New York-based firm had informed employees and investors about plans to leave its original line of business, wind down its European hedge funds business and convert its U.S. hedge fund into one primarily managing internal money.

Credit Suisse, which has been an investor in York Capital since 2010, said on Tuesday it expected to take an impairment on its stake in billionaire hedge-fund manager Jamie Dinan’s firm in the fourth quarter, which would hit its main capital metric – or common equity tier 1 (CET1) capital ratio – by roughly 7 basis points.

“The amount of the impairment taken will be assessed as part of our year-end process, but is currently expected to be approximately $450 million,” the bank said.

The impairment would not change its existing guidance for dividends and capital distributions in 2020 and 2021, Switzerland’s second-biggest bank said.

The Swiss bank, which placed an initial $425 million investment into York a decade ago, said it intended to maintain an interest in York’s Asia-Pacific business, which it expects to be spun out as a new and separate hedge fund next year.

York Capital, founded in 1991 with a focus on U.S. hedge funds, represented roughly 1% of the 438 billion Swiss francs ($481.00 billion) managed by Credit Suisse’s asset management business at the end of 2019.

Credit Suisse is scrutinising its overall strategy for asset management, part of its international wealth management division, after weak earnings within the business, which dropped 26% year-on-year through September.

Asset management is spinning out a 3 billion franc Swiss energy infrastructure investment entity, and Chief Executive Thomas Gottstein has signalled further strategic revisions over the coming year.

Swiss banks have grappled in recent years with the need to scale up asset management to make the business more profitable, but hefty write-offs over larger acquisitions have proved costly for several.

“Experience has shown that it’s almost always the selling hedge fund manager that profits from such transactions, and very seldom the buyer,” Zuercher Kantonalbank analysts said in a note. “Even if the extent of the write-off doesn’t shake Credit Suisse to its core, it does show that big banks need to be prepared for major disruption.”

Shares in Credit Suisse were up 2.2% by 1025 GMT despite the potential impairment, amid a wider market ally.

York’s new strategy will focus on longer-term assets such as private equity, private debt and collateralised loan obligations, Credit Suisse said.

($1 = 0.9106 Swiss francs)

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