Credit Suisse CEO defends bank’s role in collapsed inverse-vol ETN

Credit Suisse boss Tidjane Thiam has defended his bank’s role in creating a complex product which blew up last week, leaving investors with losses likely to run to billions of dollars.

The exchange traded note (ETN), whose value was inversely linked to the CBOE market volatility index (Vix), is being forcibly redeemed by Credit Suisse after its value plunged 96 per cent overnight following a global markets meltdown on February 5. The note’s value peaked at $2.2bn.

“The prospectus is extremely clear, I had to read it myself, it says things like your ETN has zero long term value… like if you invest for more than one day you are likely to lose all or a substantial portion of your investment,” said Mr Thiam.

“I know it by heart, that’s what it says. It’s a one day trading tool,” he said. He added that the bank acted as a distributor*; and that status coupled with the disclosures, leave the bank in a “reasonable position”.

Mr Thiam said the product generated Sfr10m in revenue per year, a small sliver of the bank’s overall revenues. “Any notion that this is material to us is (wrong), it is not material at all. It is something we do because clients want it to hedge.”

The comments came as Credit Suisse reported fourth quarter results and said that higher volatility had led to a more than 10 per cent increase in trading revenues in the first six weeks of 2018.

*This post has been amended to clarify that Credit Suisse acted as a distributor of the product.

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