Credit Suisse Cautioned Of More Losses, Attracting Regulatory Attention

Summary

• Finma says the regulator is monitoring Credit Suisse
• Bank says outflows surpassed $120 billion

Credit Suisse Group (CSGN.S) has posted its largest annual loss since the 2008 global financial crisis after rattled clients pulled out billions from the bank, and it cautioned that a further “substantial” loss would come in 2023.

HIt by one scandal after another, the bank saw a rapid acceleration in withdrawals in the December quarter, with outflows of over 110 billion Swiss francs ($120 billion), although it said the picture has been improving.

In a statement, Swiss regulator Finma said that while Credit Suisse’s liquidity buffers had a stabilizing effect on the bank and are being restored, the regulator “monitors banks very closely during such situations”.

The results, labeled as “catastrophic” by Ethos, which represents some Credit Suisse shareholders, pushed the lender’s shares down 14.7% on Thursday to 2.77 francs, valuing the bank at 11.1 billion francs.

Switzerland’s second-largest bank has started a major overhaul of its business slashing costs and jobs to restore its fortunes, including setting up a separate business for its investment bank under the CS First Boston brand. The bank successfully ended a 4 billion Swiss franc fundraising in December.

Chief Executive Ulrich Koerner said:

“We have a clear plan to create a new Credit Suisse and intend to continue to deliver on our three-year strategic transformation.”

“We have done a prudent and also hopefully a somewhat careful planning,” he told reporters.

But analysts were shocked by the scale of outflows and losses.

Credit Suisse’s “operational performance was even worse than feared and the level of outflows quite staggering,” Thomas Hallett, analyst at Keefe, Bruyette & Woods, said in a note.

“With heavy losses to continue in 2023, we expect to see another wave of downgrades and see no reason to own the shares.”

For the fourth quarter, the bank suffered a net loss of 1.39 billion francs. That took its total net loss in 2022 to 7.29 billion francs, marking its second consecutive year in the red. The bank also signalled that the wealth management division and investment bank will also likely record losses in the first quarter of this year.

The wealth management division had outflows of 92.7 billion francs in the last quarter of 2022, much greater than the 61.9 billion analysts had predicted, bringing the new total for the division’s assets under management at 540.5 billion.

The hemorrhaging of funds in 2022 caused it to violate some liquidity requirements, but its finance chief said on Thursday that the problem had since been solved. The bank’s substantial deposit and net asset outflows intensified a generally bleak picture.

Andreas Venditti, an analyst with Vontobel, described 2022 as “clearly one of the worst years in Credit Suisse’s 167-year history”, and said the future offered brief immediate respite.

Among a series of scandals, Credit Suisse was badly hit by the collapse of U.S. investment firm Archegos in 2021 along with the freezing of billions of supply chain finance funds tied to insolvent British financier Greensill.

Other scandals to hit the bank included a trial in Switzerland involving laundering money for a criminal gang.

Investment Bank

Credit Suisse’s investment bank suffered a loss of 3.8 billion francs last year – almost the same amount it paid to the division’s staff.

The bank said it logged the huge loss as trading revenues slumped but it also pointed to the impact of “accelerated deleveraging” prompted by the “significant deposit outflows” in the last quarter of last year.

On the plan to spin off the investment bank, Credit Suisse said it had acquired former board member Michael Klein’s advisory boutique for $175 million. The plans have already sparked concerns from some investors about possible conflicts of interest.

On Thursday, Ethos Foundation, which represents some Credit Suisse shareholders, said it aired “governance concerns” and that limited information had been disclosed about the deal.

Ethos Chief Executive Vincent Kaufmann told Reuters he was shocked by how much had been paid “given the little information we have today on this company founded and managed by Mr. Klein, member of the board of directors of Credit Suisse until October 2022 and designated CEO of the buyer (CSFB)”.

Credit Suisse failed to provide details of other investors that may back the investment bank. Koerner last year said it had a half-billion commitment from an investor without mentioning them.

Last November, rating agency Standard & Poor’s lowered the bank to just one level above junk.

($1 = 0.9195 Swiss francs)