2023-04-24 10:05:01
Dhe loss from Vauen, which is now driving Credit Suisse (CS) into the arms of its arch-rival UBS, can be illustrated with a single figure: CHF 61.2 billion. This is how much money the customers of the crisis-ridden major Swiss bank withdrew net in the first quarter of 2023. CS lost most of it shortly before the dramatic weekend of March 19, when UBS announced its takeover, supported by government guarantees worth billions and liquidity aid from the Swiss National Bank. Although outflows have declined since then, as Credit Suisse writes in its interim report presented on Monday, there was no trend reversal as of April 24.
This is not good news for UBS, which publishes its first-quarter report this Tuesday. Because the less money CS manages, the lower the income. The massive bloodletting, which began in the fourth quarter of 2022 with outflows of a whopping CHF 111 billion, has now forced Credit Suisse to write down the value of the wealth management business on the books by CHF 1.3 billion. As a result of this value adjustment, the bank’s flagship discipline resulted in a pre-tax loss of CHF 1.5 billion.
Even in the investment bank, which has been a constant source of problems in the past, things did not go well, as the quarterly loss before taxes of CHF 487 million shows. Only the business in the Swiss home market, where CS operates as a universal bank, proved to be comparatively stable. Despite net cash outflows of almost 7 billion francs, a gross profit of 313 million francs was achieved here, 20 percent less than in the same period last year.
resistance to depreciation
The bottom line is that Credit Suisse shows a net profit of CHF 12.4 billion. This can be explained by the complete write-off of the so-called AT1 bonds of CHF 15 billion ordered by the Swiss Financial Market Authority (Finma). This measure is part of the rescue package that was used to persuade UBS to take over CS. However, there is resistance to this: Represented by the American law firm Quinn Emanuel, aggrieved investors have filed a complaint against the Finma decision with the Federal Administrative Court in St. Gallen. The Swiss Ministry of Finance, which played a leading role in the emergency maneuver, has received two requests for state liability and one request for compensation. The Zurich public prosecutor’s office has received criminal charges in the matter.
How badly Credit Suisse has gotten under the wheels in the operational business can be seen in the development of income: Net income slipped by 40 percent in the first quarter to CHF 2.7 billion. Costs, on the other hand, fell by only 6 percent. This resulted in a pre-tax loss adjusted for special effects of CHF 1.3 billion after a gross profit of CHF 300 million in the first quarter of 2022.
Looking ahead doesn’t bode well either: due to the greatly reduced portfolio of assets under management and deposits, the Management Board expects interest, commission and fee income to continue to fall. This will lead to a “significant loss” in asset management in the second quarter, according to the interim report, for which CS, unlike usual, did not hold an analysts’ or press conference. The Management Board also expects a “significant pre-tax loss” in the investment bank and in the entire group in the second quarter and for the full year 2023.
CS cites a number of factors that will affect results: exiting non-core businesses, further impairments, litigation, regulatory action, increased funding costs, and continued “voluntary and involuntary turnover” of employees. The latter alludes to the fact that a number of employees are fleeing before UBS formally takes over the scepter at CS. It may take up to two months for the merger to come into effect, which the supervisory authorities of several dozen countries will have to approve.
By the end of March, Credit Suisse said it had received a net amount of CHF 108 billion in liquidity support from the Swiss National Bank (SNB). By April 24, CHF 10 billion had been repaid. As was to be expected, CS called off the originally planned takeover of the investment banking business of American Michael Klein. She wanted to buy Klein’s investment boutique for $175 million and incorporate it into a revitalized CS First Boston (CSFB). However, UBS did not believe in this plan at all. She wants to streamline the CS investment bank and thus take risks out of the business.
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