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ZURICH (Reuters) – Credit Suisse (SIX:CSGN) reported a 273 million Swiss franc ($283.6 million) first-quarter loss on Wednesday that worsened its financial pain and prompted a fresh management reshuffle at the lender.
Legal charges and a near halving of net revenues hit profit at Switzerland’s second-biggest bank, which is still reeling from billions in losses racked up in 2021. Shareholder pushback is growing over what has been described as a freewheeling culture.
Credit Suisse’s fourth quarter in the red out of the last six marks a widening performance gulf between the lender and its larger rival UBS, which on Tuesday posted its best first-quarter profit in 15 years.
Credit Suisse executives also flagged tough times ahead, saying capital could remain constrained over the next six months as the bank continues to make significant remediation outlays towards compliance and risk. Its core capital metric, or common equity tier 1 ratio, dipped to 13.8% from 14.4% at end-2021.
“The first quarter of 2022 has been marked by volatile market conditions and client risk-aversion. These conditions, together with the impact from our reduction in risk appetite in 2021 as we took decisive actions to strengthen our overall risk and controls foundation, had an adverse impact on our net revenues,” Chief Executive Thomas Gottstein said in a statement.
Credit Suisse announced that three of its longest-serving executives are leaving their roles. After that, Credit Suisse’s executive board will consist entirely of managers who assumed their current roles no earlier than 2020.
Chief Financial Officer David Mathers would depart as soon as a suitable successor was found, while Group General Counsel Romeo Cerutti would retire after more than 10 years, to be replaced by former UBS General Counsel Markus Diethelm.
It named Edwin Low head of its Asia-Pacific business, replacing veteran banker Helman Sitohang, and brought in Francesca McDonagh to head its EMEA region.
WEAK REVENUES
The bank has been trying to reform its risk management culture and turn the page on a series of scandals, which have prompted multiple rounds of top management shake-ups, abrupt departures, and internal and external probes.
In recent months, it has also become a defendant in the first criminal trial against a major bank in Switzerland, while a Bermuda court in March ruled a local arm of the lender owed billionaire Bidzina Ivanishvili in excess of $500 million over a long-running fraud committed by a former adviser.
On Wednesday, it said it had bulked up legal provisions by 703 million francs during the quarter, which contributed to the weak bottomline. The bank had warned last week that the quarter would yield a loss, which ultimately turned out to be steeper than the year-ago period’s 252 million franc hit.
But analysts said even on an underlying basis, the results disappointed due to weak revenues in both its core wealth management and investment banking businesses.
“The detailed release today is another negative surprise,” Jefferies analysts said in a note. “Removing all of the above one-offs and getting to an adjusted basis, the picture remains concerning in our view.”
Shares pared back early declines to trade flat by 0856 GMT.
CLIENT INFLOWS
Investors have been looking for signs of how the series of scandals is impacting the bank’s client relationships, seen as the bedrock of Credit Suisse’s core wealthy and ultra-wealthy segments of the wealth management business.
On Wednesday, it said its core wealth management business, which it has been trying to shore up, had seen 4.8 billion Swiss francs in fresh client inflows during the first three months of the year, driven mainly by ultra-wealthy customers in Switzerland as well as its Asian and external asset managers businesses.
Revenues in the business, however, fell 44% as it pointed to a slowdown in its wealth and investment banking ‘Global Trading Solutions’ tie-up – an area the bank is targeting for growth under its new strategy – as well as lower brokerage and product fees.
Credit Suisse announced plans in November to rein in its investment bankers and exit prime services, the business responsible for booking a multi-billion dollar hit following the collapse of U.S. investment firm Archegos in March 2021.
On Wednesday it said it had reduced capital allocated to the investment bank by $2.5 billion since end-2020 and remained on track to release over $3 billion through 2022.
Investment banks have come under pressure due to a slump in dealmaking globally, but volatility fuelled by concerns around interest rate hikes and the economic fallout of the Ukraine war have helped trading desks outperform expectations.
Alongside a steep drop in capital markets revenues seen by other competitors, Credit Suisse posted a 47% drop in equity sales and trading revenues, impacted by its exit from prime services alongside lower derivatives and cash trading sales, while fixed income sales & trading was down 50%.
The bank will face investor scrutiny at its annual general meeting on Friday.
($1 = 0.9627 Swiss francs)
