Credit Suisse Blames ‘Material Weaknesses’ In Reporting, Outflows Not Reversed

Summary

• Delayed annual report published
• Auditors PwC included “adverse opinion” on bank’s internal controls
• Outflows not yet reversed

Credit Suisse (CSGN.S) said in its 2022 annual report the bank has discovered “material weaknesses” in internal controls over financial reporting and has not yet stopped customer outflows.

“As of December 31, 2022, the Group’s internal control over financial reporting was not effective, and for the same reasons, management has reassessed and has reached the same conclusion regarding December 31, 2021,” it said in the filing released on Tuesday.

Auditor PricewaterhouseCoopers (PwC) in the report included an “adverse opinion” on the success of the bank’s internal controls over its reporting but its statements “present fairly, in all material respects” the financial position of the bank in 2020 through 2022.

Swiss regulator FINMA said it is evident that the bank must have relevant control processes in place.

“When weaknesses in the controls are identified, we expect timely remediation of the control weaknesses,” it told Reuters. “We are in contact with the bank on this matter.”

The reporting weaknesses occur as Credit Suisse is attempting to recover from a series of scandals that have diminished the confidence of investors and clients. Customer outflows in the December quarter increased to more than 110 billion Swiss francs ($120 billion).

On Tuesday the bank said “outflows (had) stabilized to much lower levels but had not yet reversed”.

Reiterating what the bank had said in the past two sets of quarterly results, the annual report explained how the outflows caused Credit Suisse “to partially utilize liquidity buffers at the group and legal entity level” and the bank said it “fell below certain legal entity-level regulatory requirements.”

Banks require to meet certain liquidity buffer requirements to satisfy potential customer demands for their cash. When asked in an analyst call on February 9 whether the liquidity breaches had since been settled, Chief Financial Officer Dixit Joshi responded, “yes, absolutely.”

The bank’s shares plunged more than 3% before cutting losses to trade down 1.55% as of 1152 GMT.

The cost of insuring against a Credit Suisse debt default increased to an all-time high above 520 basis points, according to S&P Global Market Intelligence. Banks across the world have been swept up in a sell-off caused by the failure of two U.S. lenders last week that forced regulators to intervene and guarantee deposits.

FINMA on Monday said it was trying to determine any potential contagion risks for the country’s banks and insurers in response to the U.S. bank failures.

Scheduled for publishing last week, the annual report was delayed following a request from the U.S. Securities and Exchange Commission (SEC), which had called into questions the bank’s past financial statements.

Credit Suisse said the SEC had contacted it about past revisions to consolidated cash flow statements for 2019 and 2020.

The bank said on Tuesday it is working on a “remediation plan” and will enforce “robust controls to ensure that all non-cash items are classified appropriately within the consolidated statement of cash flows”.

($1 = 0.9129 Swiss francs)