Credit Suisse Signals Deeper Loss as Charges Mount, Clients Pull
Credit Suisse Flags More Charges, Ouflows to Cap Terrible Year
(Bloomberg) -- Credit Suisse Group AG closed out a scandal-tainted year by warning of a deeper quarterly loss as charges mount and business slows at its two biggest units.
The lender said in a surprise statement Tuesday that it will post a loss in its investment bank as it exits the business with hedge funds and trading conditions normalize. Clients in the key wealth unit pulled money in the fourth quarter as they reduce risk, particularly in Asia. Credit Suisse will also set aside an additional 500 million francs ($546 million) for litigation, pushing it deeper into the red.
The performance issues and additional charges cap the bank’s worst year since the financial crises after it was shaken by the collapse of Archegos Capital Management and Greensill Capital. Chief Executive Officer Thomas Gottstein has struggled to revive confidence among employees and investors after an exodus of talent. A reboot under star banker Antonio Horta-Osorio has been thrown into doubt after he was ousted as chairman nine months into his role.
“We expect these results will again bring into question management leadership,” analysts at Citgroup Inc. including Andrew Coombs wrote in a note. “Near-term momentum remains very poor, and ambitions to grow the top-line still seem a distant prospect.”
Credit Suisse already warned in November that it will post a net loss on the back of a 1.6 billion-franc impairment tied to its restructuring. The new charges will further weigh on results. The bank said it expects to have near-zero pretax income in the fourth quarter before the big restructuring charge.
Shares of Credit Suisse fell 1.4% at 10:06 a.m. in Zurich trading. The stock has lost almost a third of its value over the past year, the worst performer among the large European banks, which have rallied on the prospect of higher interest rates.
The new provisions, which will be partly offset by gains from real estate sales, come from a “number of cases where the Group has more proactively pursued settlements and primarily relate to legacy litigation matters from our investment banking business,” Credit Suisse said. It didn’t provide details on what litigation is covered by the charge.
What Bloomberg Intelligence Says:
Credit Suisse’s modestly negative 4Q wealth management outflows may fuel knock-on risk concerns amid its pivot toward the business, even as management cites a transaction slowdown in core International and Asia Pacific divisions and Asia client deleveraging. Litigation provisions of 500 million Swiss francs was over double expectations, offset by real estate sales gains of 225 million francs, but we expect these support clearing a core path for 2022 along with other sizable charges. A CET1 Ratio exceeding 14% despite these is positive.
-- Alison Williams, BI banking analyst
Credit Suisse Wealth Outflows Bigger Worry vs. Legal Cost: React
Transaction-based revenues at the investment bank and wealth business declined, reflecting both a seasonal slowdown and conditions returning to a more normal state after the “exceptional environment” in 2020 and 2021, the lender said. The loss at the investment bank is before the goodwill impairment, and also reflects the exit from the prime brokerage business at the heart of the Archegos hit.
The bank also said it has seen a “significant” slowdown in transaction activity at the international wealth management and Asia Pacific divisions, including a de-leveraging by clients in Asia amid market gyrations. That will lead to negative net new assets for its wealth business, though that will be offset by inflows in asset management.
The wealth unit had been a focus for Horta-Osorio, who was widely seen as the architect of a strategic shift late last year to move resources away from the investment bank, including the exit from the prime brokerage business at the heart of the Archegos blowup. Brought in to improve risk management and instill a sense of personal accountability, he was ousted just over a week ago for breaching quarantine rules.
The appointment of Axel P. Lehmann as new chairman has raised questions about whether he and Gottstein will continue with the strategy or seek to undertake any further change of course, including further cuts to the investment bank. Lehman has said the bank was on the right strategic course and that he would continue to strengthen its risk culture.
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