Thursday 27 April 2023

Credit Suisse lost over $68 billion in assets in Q1, bank’s turmoil continues

 Credit Suisse reported on Monday, April 24, that it saw over 61 billion Swiss francs ($68.47 billion) in assets leave the bank during the first quarter of the year.

The Zurich, Switzerland-based bank cited the “significant net asset outflows” as it posed results skewed by the debacle involving the Swiss government’s arranged merger with Credit Suisse and its rival UBS. This takeover was supposed to help stabilize the global financial system following the chaos that occurred in the United States due to the collapse of two major banks. But in effect, this government-enforced takeover caused even more instability.  

Credit Suisse reported net asset outflows of 61.2 billion francs ($68.47 billion), amounting to about five percent of all of its assets under management. This follows net asset outflows of 110.5 billion francs ($123.96 billion) pulled by clients from the bank during the fourth quarter of 2022. Worse yet, the bank reported that the outflows “have not yet reversed” despite moderating slightly.

Credit Suisse posted pretax profits of 12.8 billion francs ($14.36 billion), stemming almost entirely from writing down its high-risk bond holdings. Without these assets, it would have posted a pretax loss of 1.3 billion francs ($1.46 billion).

Customer deposits also declined by 67 billion francs during the quarter, and the bank noted that many time deposits – deposits that can’t be withdrawn without penalty until a certain time – that have matured had not been renewed.

Credit Suisse also reported that its operating expenses have increased by 30 percent from the previous quarter, which the bank said is largely due to a “goodwill impairment charge” that increased the compensation and benefits it has to pay out to current and former employees.

Private clients also pulled out 6.9 billion francs ($7.75 billion) from the bank’s Swiss division amid questions over the future of the Credit Suisse unit in the country.

No end in sight for Credit Suisse’s troubles

Credit Suisse’s report of net asset outflows is just the latest blow to the reputation of the 167-year-old Swiss financial institution, which has been pummeled in recent years over stock price declines, a string of scandals, the flight of customers worried about the bank’s future and, more recently, the debacle with the Swiss government.

Worse yet, the bank’s financial report may likely be its last, as the state-engineered merger with UBS is expected to be completed in the next few months.

Analysts even noted that the magnitude of net asset outflows from Credit Suisse was exceptionally alarming, and its ability to generate revenue appeared to be so damaged that “the deal could well remain a drag on U.S. operating results unless a deeper restructuring plan is announced,” noted financial analyst Thomas Hallett.

Credit Suisse’s flagship wealth management division noted that the assets it was managing plunged by 29 percent to 502.5 billion francs ($564.31 billion) at the end of March compared to the same period last year.

The bank reported that its wealth management and investment banking divisions would continue to post losses during the second quarter, assuming that the forced takeover with UBS isn’t completed by the end of June, adding that the group is also expected to post a loss by the end of the year.

Credit Suisse noted that, after it experienced a bank run when clients started rapidly pulling money from the bank after it was ensnared in the market turmoil unleashed by the collapse of Silicon Valley Bank and Signature Bank in the U.S., it had to rely on a bailout from the Swiss government to remain afloat.

In the bailout, UBS agreed to take over Credit Suisse for three billion francs ($3.37 billion) and assume up to five billion francs ($5.62 billion) in losses. The Swiss government will also provide UBS with 200 billion francs ($224.75 billion) in financial guarantees.

Credit Suisse also continues to receive billions of francs from the Swiss government to keep it propped up before the forced takeover concludes. By the end of last quarter, the bank reported that it had 108 billion francs ($121.34 billion) in net borrowings.

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