After alarmed clients withdrew billions from the bank, Credit Suisse Group (CSGN.S) recorded its largest yearly loss since the global financial crisis of 2008 and issued a caution that a further “significant” loss will occur this year.
Having been hit by controversy after scandal, the bank experienced a dramatic increase in withdrawal in the fourth quarter, with much more than 110 billion Swiss francs (about $120 billion) leaving the institution, despite claims that the situation has been improving.
The outcomes, which Ethos, which speaks for certain Credit Suisse shareholders, called “catastrophic,” caused the bank’s shares to drop as much as 10%.
The second-largest bank in Switzerland has started a significant business restructuring that includes job cuts and cost cuts, as well as the separation of its investment bank into a separate company called CS First Boston. In December, the bank effectively raised 4 billion Swiss francs.
The new Credit Suisse has a clear plan, according to Chief Executive Ulrich Koerner, and we expect to keep executing our three-year strategic transition.
He told reporters that there is some fool-proof planning that was prudent, he hoped.
But the size of the losses and outflows concerned analysts.
Thomas Hallett, an analyst at Keefe from Bruyette & Woods, believed the operational performance of Credit Suisse was significantly worse than anticipated, and the magnitude of outflows was rather astounding.
There are forecasts for further downgrades in 2023, and there is little incentive to own the shares given the expected continuation of significant losses.
The bank reported a net loss of 1.39 billion Swiss francs for the fourth quarter. It now had a 7.29 billion franc net loss for the entire year of 2022, which was its second consecutive year of losses.
The bank also warned that the investment bank and wealth management division will probably post deficits in the first quarter of 2023.
The wealth managing division’s fourth-quarter outflow of 92.7 billion francs were far greater than the 61.9 billion experts had predicted, bringing the division’s assets under control to a new level of 540.5 billion.
It violated several liquidity criteria due to a fund haemorrhage last year, but its finance chief indicated on Thursday that the issue has since been remedied.
The bank saw large net asset and deposit outflows, which worsened an already dire situation.
According to Andreas Venditti, the analyst with Vontobel, last year was unquestionably one of the weakest in Credit Suisse’s 167-years thriving history, and the outlook was not particularly encouraging.
Credit Suisse suffered greatly from a number of scandals, including the bankruptcy of the American investment company Archegos in 2021 and the blocking of billions of supply chain financing funds connected to the bankrupt British financier Greensill.
Other controversies that rocked the bank included a Swiss case concerning money laundering for a criminal organisation.
In 2022, the investment bank at Credit Suisse reported a shortfall of 3.8 billion francs, or about the same amount as it paid its employees.
The bank claimed it incurred the huge loss as trading revenues plummeted, but it also highlighted the impact of faster deleveraging brought on by the sizeable outflows of deposits in the latter three months of the previous year.
Regarding the intention to spin off the investment banking, Credit Suisse disclosed that it has paid $175 million for the consultancy firm of former board member Michael Klein.
Some investors have already expressed worry about probable conflicts of interest as a result of the proposals.
The Ethos Foundation, which speaks for certain Credit Suisse shareholders, stated on Thursday that it had “administration concerns” and that not enough details regarding the merger had been made public.
