Credit Suisse Abandons Plan To Back Former Bond Trader’s New Fund After He Turned Down Citadel

Imagine turning down a job at Citadel’s extremely lucrative hedge fund division after being promised seed money to start your own credit-focused fund under the auspices of Credit Suisse’s asset-management division (after earning the bank millions of dollars a year as a trader), only to see the bank reneged on its promise and kick you out the door following two embarrassing incidents that you had nothing to do with.

According to Bloomberg, that’s exactly what’s happening to former Credit Suisse star trader Hamza Lemssouguer and his new Arini European Credit fund, which is being moved “outside” the bank, and will no longer be seeded with CS capital (though presumably the bank will help Lemssouguer find some clients). Lemssouguer will now run the fund outside the bank, according to an internal memo seen by Bloomberg. Credit Suisse will not invest any money or retain an ownership stake, according to BBG’s sources.

CS spokeswoman Sofia Rehman confirmed the memo’s contents. The fund launch has already been delayed as the bank re-evaluated its “risk appetite” for using its own cash to finance risky trading strategies.

When CS first convinced Lemssouguer not to leave, it promised him $500MM in assets to manage and his own European credit fund that would be managed as part of the bank’s asset-management division. However, this was before the collapse of Greensill and the Archegos blowup, two unrelated incidents that saddled CS with billions of dollars in losses. In the aftermath, CEO Thomas Gottstein fired the bank’s risk-management head and a raft of other senior executives, while promising to completely overhaul the bank’s risk-management practices.

For what its’ worth, Lemssouguer has been holding presentations for prospective investors. Lemssouguer has already held investor presentations to raise money for his absolute return credit fund, which aims to take advantage of distortions in credit markets with long and short positions, stressed opportunities, and the capability to single-name shorting, according to a presentation.

Junk bonds have already been a favorite of fund managers this year who are willing to take bigger risks in search for yield as central banks keep supporting markets, though expectations for higher inflation may complicate such trades.

“Hamza and the Arini team have engaged with clients and would like to capitalize on current dislocations in European credit,” according to the bank. “Given the timing, we have agreed with Hamza that it would be in the best interest of prospective investors and the team for Arini to proceed outside of Credit Suisse.

Apparently, CS’s other top employees are getting anxious. As Bloomberg reported Wednesday morning, Credit Suisse has started offering top bankers retention bonuses as more are looking to jump ship after the recent losses. Now, the bank is even considering whether it should spin off its asset management division, where the Greensill trade finance funds were housed. CEO Gottstein also cut CS’s dividend and the bank’s longtime chairman Urs Rohner, was pushed out with a rare apology at the start of May. He has since been replaced by former Lloyds Bank boss Antonio Horta-Osorio.

The bank is also “curbing risk” – ie cutting ties with certain clients or demanding more collateral – in its prime brokerage division, where the bank’s outsize exposure to Archegos saddled the bank with nearly $5 billion in losses, making it the worst-hit out of a handful of megabanks who were financing the fund’s trades. It was later revealed that CS’s business with Archegos brought in less than $20MM in fee revenue, a tiny sum compared to the outsize losses it generated.