Credit Suisse Sees ‘Substantial’ 2023 Loss After Record Outflows

Credit Suisse Group AG warned it expects a substantial loss this year after clients pulled a record amount of funds in the final three months of 2022, capping the bank’s worst annual performance since the financial crisis.

(Bloomberg) — Credit Suisse Group AG warned it expects a substantial loss this year after clients pulled a record amount of funds in the final three months of 2022, capping the bank’s worst annual performance since the financial crisis. 

The worse-than-expected net loss of 1.39 billion Swiss francs ($1.5 billion) in the three months through December was driven by losses at both the key wealth division and the investment bank, Credit Suisse said Thursday. Credit Suisse is still struggling to recover from outflows after a social media storm questioning the bank’s future led to depositor panic in the first few weeks of October, with outflows for the quarter totaling 110.5 billion francs. 

While Chairman Axel Lehmann has sought to stem the exodus, the loss of assets will see the key wealth management unit continue to bleed into the first quarter. In an attempt to regain the bank’s footing, Credit Suisse is carving out parts of its investment bank and refocusing on its core wealth-management business, revamping its strategy after years of scandals and losses shattered confidence in the brand. 

Read More: Credit Suisse Chief Reiterates 2024 Profit Goal as Flows Return

“We have taken comprehensive measures to further increase our client engagement and regain deposits as well as assets under management,” the bank said. 

Credit Suisse shares were indicated down 4% in at Julius Baer in pre-market trading Thursday. 

Chief Financial Officer Dixit Joshi said Thursday that the wealth management unit had seen inflows in January, particularly in Asia Pacific, in a sign that the bank is winning back some client confidence. 

The bank pulled off a $4 billion capital raise late last year with Saudi National Bank taking a stake of about 10%, and is shedding as many as 9,000 jobs with the aim of regaining profitability by 2024. As a result of the losses and cost cutting drive, the bank has cut the pool for variable compensation for 2022 by about 50%. The bank said it estimates restructuring charges for 2023 of about 1.6 billion francs.

Trading Declines

Fixed income trading revenues in the quarter were down 84% year on year, while equities trading revenues fell 96%, a significantly worse performance in both areas than European or Wall Street peers.  Meanwhile capital markets and advisory revenues were also down 59%, as a result of a slump in dealmaking and an uncertain market environment. 

In wealth management, the bank posted a before-tax-loss of 199 million francs, worse than estimates. Recurring fees and net interest income were both down by 17%, while transactions revenues slumped 20% driven by marked-to-market losses for APAC financing of 31 million francs.

On Thursday, the lender announced the purchase of M. Klein & Co. operations for $175 million, as part of the establishment of the new Credit Suisse First Boston brand to house investment banking functions. 

The bank has said it has received a commitment for a $500 million injection in the business and is engaging with other interested parties to provide balance sheet or equity for the carve out. 

The continued losses underscore the urgency for Lehmann and Chief Executive Officer Ulrich Koerner to put Credit Suisse on sustainable footing, with investors and analysts showing limited patience for execution of the revamp. 

“With heavy losses to continue in 2023, we expect to see another wave of downgrades and see no reason to own the shares,” analysts at Keefe, Bruyette and Woods wrote in a note Thursday. 

Read the latest developments at CSFB:

  • Credit Suisse Near Deal for Klein Boutique After Tense Talks (2)
  • Credit Suisse CEO Has ‘Zero Concern’ Over Conflict in Klein Deal
  • CS First Boston Leader Says Traders Make It More Than a Boutique

 

 

(Updates with CFO comment, details on trading results)

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