Credit Suisse Sheds More Executives After Another Quarterly Loss
Credit Suisse Posts Second Straight Quarterly Loss on Legal Woes
(Bloomberg) -- Credit Suisse Group AG reported a bigger-than-expected loss, parted ways with three senior executives and warned that the full damage from one of the most turbulent periods in its history is yet to be accounted for.
The Zurich-based bank posted a net loss of 273 million Swiss francs ($284 million), in the first quarter driven by 703 million francs in total legal expenses as well as a charge related to Russian exposure. Wealth management results came in weaker than expected, and trading revenue suffered a bigger hit than most peers.
The sustained losses signal that the bank’s own goal of making 2022 a period of transition to stability is at risk, following last year’s multi-billion dollar hits linked to Archegos Capital Management and Greensill Capital. That has prompted further blood-letting, with the departure of Chief Financial Officer David Mathers, chief counsel Romeo Cerutti as well as Asia head Helman Sitohang announced on Wednesday.
Credit Suisse shares fell as much as 1.8% after opening in Zurich on Wednesday before paring losses. The stock has lost half its value since the beginning of March last year.
“We are very much focused on our strategy” of boosting the bank’s profitability, Gottstein said in an interview with Bloomberg Televisions Manus Cranny. By doing that “the valuation of this bank will go back where it belongs and so will this brand.”
In its outlook, the bank warned that it expects “continued significant remediation spend in risk, compliance and infrastructure.” The lender is also working through a string of legal cases from a Bermuda lawsuit involving a local insurance unit to upcoming battles with investors over the frozen supply-chain finance funds linked to Greensill.
Earlier this month the bank said investors in those funds should brace for a five-year fight with insurers and problem borrowers to get their money back.
The bank said it would hold a “deep dive” event for investors on risk, compliance, technology and wealth-management before second-quarter earnings this year.
Mathers said the bank is “working through a backlog” of cases, and would not expect to see the same level of litigation provisions every quarter as has been posted in this release.
In wealth management, the bank posted a before-tax loss of 357 million francs, worse than the estimated 22.7 million franc profit. The bank said volatile market conditions, client risk aversion and its own reduced risk appetite contributed to the loss along with the litigation costs. The bank saw net new client asset inflows of 7.9 billion francs, according to a statement on Wednesday.
“It’s good to see positive net new assets but it’s not something I’m jumping about as they’re still at a low level,” Gottstein said.
In the investment bank, which houses the business of advising on mergers and acquisitions, Credit Suisse reported $124 million in pretax profit, missing estimates. The bank had already warned that capital markets activity had slowed in the quarter.
What Bloomberg Intelligence Says:
Credit Suisse’s management changes can’t improve the difficult operating environment, though broadly positive Wealth and Swiss Private Banking net new assets -- including 1.8 billion francs in Asia -- should stem franchise fears. Reduced capital allocated to the underperforming investment bank shows strategy progress, though bank de-risking, lower client activity and expense headwinds are likely to weigh further in this transition year. A 13.8% CET1 ratio provides a cushion, though less than in 4Q.
-- Alison Williams, BI banking analyst
Mathers, 56, will be leaving the bank once a replacement has been found, while Edwin Low takes over as head for the Asia-Pacific region from Sitohang, the current head, who is staying on as a senior advisor.
Ex-UBS Group AG top lawyer Markus Diethelm becomes the new chief legal officer, replacing Cerutti who will retire, according to a statement on Wednesday. The bank also said Francesca McDonagh will become CEO of the EMEA region in October. That position had been held by wealth head Francesco de Ferrari on an interim basis.
The negative results and outlook come just ahead of the bank’s annual general meeting on Friday, at which some shareholders are set to increase pressure for more transparency into the collapse of the Greensill funds.
Trading Miss
The investment bank missed out on trading revenues due to its limited exposure to areas such as interest rate trading, which saw the most activity in the first quarter. Fixed income trading revenues were down 50% year on year, steeper than Wall Street peers, and equities trading revenues were down 47%, largely still due to the bank’s exit of prime brokerage services and lower cash trading volumes. Capital markets revenues fell 66% and the advisory business was down 14%, in line with the less-favorable environment for dealmaking.
Credit Suisse reported losses of 206 million francs on exposure to Russia’s invasion of Ukraine. In line with many peers following the invasion of Ukraine, the bank has stopped all new business in Russia and is cutting its exposure to the country. Gottstein has said that about 4% of assets in the wealth unit were with Russian clients.
The wealth business, which is reporting as a global unit for the first time after being restructured late last year, reported new wealth assets of 4.6 billion francs, with the biggest contribution coming from Switzerland. Asia Pacific contributed 1.8 billion francs in net new assets. Swiss rival UBS Group AG reported $19.4 billion of net new fee-generating assets.
The bank saw weaker trading revenues from its wealthy clients, with transaction-based revenues down 22% on an adjusted basis and steeper than at UBS. Credit Suisse cited lower brokerage fees and structured product revenues due to the challenging market conditions in the first quarter.
UBS, which reported first quarter earnings on Tuesday, said it is seeing continued caution from investors in the Asia Pacific region amid global geopolitical uncertainty and Covid-related restrictions. It saw a net deleveraging of $3.1 billion of loans in Asia this quarter and overall transaction-based revenues for its wealth unit plummet 19%.
Additional Details:
- CET1 ratio 13.8%, missing the more-than-14% target
- Net revenue 4.4b francs
- Swiss Universal Bank pretax profit 471m francs vs 393 million estimate
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