Credit Suisse warns of $1.6 billion loss as wealthy clients leave

Credit Suisse expects a pretax loss of up to 1.5 billion Swiss francs ($1.58 billion) in the fourth quarter as it continues to bleed cash, the Swiss bank said on Wednesday, shortly before shareholders approved a $4 billion capital increase.

The bank said a “challenging” economic and market environment hurt customer business, while cash outflows across the business increased at the start of its fourth quarter.

The profit warning is the latest setback for the embattled lender which had previously forecast a net loss for the last three months of the year but did not give a figure.

The bank also gave a sobering assessment of the scale of its problems, which have been exacerbated by customers withdrawing their savings and investments.

The bank said there was an outflow equivalent to 6% of the assets managed by the group at the end of the third quarter. He said that trend in the wealth management division, which caters to wealthy clients, has since improved but has yet to be reversed.

As a result, the bank was forced to draw on cash reserves, slipping below certain minimum regulatory requirements, despite saying its key liquidity and funding needs had been met.

Credit Suisse (CS) held an extraordinary general meeting on Wednesday, winning approval for a capital increase to fund a way out of the biggest crisis in its 166-year history.

The bank has been battered by a series of scandals and losses, including a $5.5 billion loss following the collapse of US investment firm Archegos. He also had to freeze $10 billion in supply chain finance funds linked to insolvent British financier Greensill.

“Investment banking was impacted by the substantial slowdown in industry-wide capital markets and reduced activity in sales and trading activities, compounding normal seasonal declines, and underperformance relative to the group,” said Switzerland’s second-largest bank.

“Credit Suisse would expect the Investment Bank and Group to report a substantial pre-tax loss in the fourth quarter of 2022, up to … 1.5 billion. [Swiss francs] for the Group.

This follows a pre-tax loss of 342 million francs in the third quarter and a loss of 1.94 billion francs so far this year.

Client activity remained subdued in the wealth management and Swiss Bank divisions, a situation that is expected to continue in the coming months, the bank said.

Analysts worried about the outflows, which Bank Vontobel estimated at around 84 billion Swiss francs ($88.2 billion).

“Massive net outflows in wealth management, CS’s core business alongside the Swiss bank, are deeply concerning, especially as they have not yet reversed,” said Andreas Venditti, an analyst at Vontobel. “CS needs to restore trust as quickly as possible, but that’s easier said than done.”

In wealth management, outflows declined “substantially” from high levels in the first two weeks of October and represented around 10% of assets under management at the end of the third quarter of 2022, Credit Suisse said.

The cost of insuring Credit Suisse’s debt against default rose and its bonds came under pressure after the announcement slashed the value of its shares by up to 6%, which lost nearly 60% so far this year.

Credit Suisse also highlighted its efforts to improve its balance sheet and reduce risk, including bond sales that raised $5 billion and the sale of part of its securitized product group.

In late October, Credit Suisse unveiled a plan to cut thousands of jobs and shift away from investment banking toward less turbulent wealth management.

He said he was also making progress towards his goal of cutting costs by 15% by 2025, including cutting spending by about 1.2 billion francs by the end of 2023.

“The Group continues to execute the decisive strategic actions detailed on October 27, 2022, to create a simpler, more focused and more stable bank,” he said.