Summary
- Embattled bank delivers profit warning
- Clients have pulled out billions since October
- Outflow improving but not reversed
- Shareholders approve capital hike
Credit Suisse (CSGN.S) expects to suffer a hefty loss for the final quarter of the year, continuing to hemorrhage billions of francs as rich clients abandon the embattled Swiss bank.
The investment bank (Credit Suisse) signaled that it was on course for a pre-tax loss of up to 1.5 billion Swiss francs ($1.58 billion) in the current quarter, and disclosed that wealthy clients had made large withdrawals, causing a huge drop in liquidity, defying some regulatory limits.
Chairman Axel Lehmann pointed to shareholder backing on Wednesday of the bank’s proposed 4 billion franc capital raising from investors, as a “further positive step in building the new Credit Suisse”.
“We’re entirely focused on implementing our strategic priorities,” he said, promising a brighter and more profitable future.
However, shareholders and analysts were alarmed by the bank’s discouraging assessment of the scale of its problems, as well as the rate at which wealthy clients withdrew savings and investments.
Credit Suisse said there had been an outflow of 6% of assets at the end of the previous quarter. It said this trend in the wealth management division, catering to wealthy clients, has since become better, but had yet to reverse.
Analysts at Vontobel forecasted the scale of such withdrawals to be near 84 billion Swiss francs. As a result, the bank was compelled to feed into liquidity buffers, falling below certain minimum regulatory requirements although it said its core liquidity and funding requirements had been maintained.
Vontobel’s Andreas Venditti stated:
“The massive net outflows in Wealth Management … are deeply concerning – even more so as they have not yet reversed. CS needs to restore trust as fast as possible – but that is easier said than done.”
Venditti said that the bank’s liquidity coverage ratio (LCR), a major financial benchmark, had dropped “massively” approaching a legal minimum of 100%. The bank said its average daily LCR for the current quarter was 140%.
Investors were also unnerved.
The cost of insuring the debt of Credit Suisse against default surged and its bonds experienced pressure following the announcement, which took as much as 6% off the value of its shares, which have shed nearly 60% so far in 2022.
Credit Suisse Plagued By Scandal
Credit Suisse’s capital boost will be used to finance its revamp, an effort to recover from the greatest crisis in the bank’s 166-year history.
It has been hit by a series of scandals and losses, including a $5.5 billion loss from the collapse of U.S. investment firm Archegos. It also had to freeze $10 billion worth of supply chain finance funds tied to bankrupt British financier Greensill.
Switzerland’s second-biggest bank said that a general slowdown had hurt its investment bank, escalating pressure on the group, which was set for a hefty loss. A fourth-quarter pretax loss of CHF 1.5 billion, is significantly worse compared to the 342 million franc loss in the previous quarter. It comes in addition to a 1.94 billion franc loss so far in 2022.
Buy Bitcoin NowThe bank said that outflows in wealth management had shrunk “substantially” from a high in the first two weeks of last month but had yet to reverse and were nearly 10% of that division’s assets managed at the end of the previous quarter.
At the end of last month, Credit Suisse announced a plan to lay off thousands of employees and move its focus away from investment banking and towards less tumultuous wealth management.
($1 = 0.9507 Swiss francs)
