Credit Suisse, Switzerland’s second-largest bank, stands next to a Swiss flag in central Geneva.
Fabrice Coffini | AFP | Getty Images
Credit Suisse The quarterly loss reported on Thursday was significantly lower than analysts had expected, as it announced a massive strategic overhaul.
The troubled bank posted a third-quarter net loss of 4.034 billion Swiss francs ($4.09 billion), compared with analysts’ expectations for a loss of 567.93 million Swiss francs. The figure was also well below the 434 million Swiss franc profit reported in the same period last year.
The bank noted that the loss reflected a CHF 3.655 billion impairment related to the “reassessment of deferred tax assets as a result of a comprehensive strategic review”.
Under pressure from investors, the bank revealed a major overhaul of its business to address poor performance at its investment bank, after a slew of litigation costs hit earnings.
In its widely anticipated strategic shift, Credit Suisse has vowed to “completely restructure” its investment bank to significantly reduce its exposure to risk-weighted assets, which are used to determine banks’ capital requirements. It also plans to cut its cost base by 15 percent, or CHF 2.5 billion, by 2025.
Credit Suisse expects to incur a restructuring charge of CHF 2.9 billion by the end of 2024.
In a transformation plan, Credit Suisse spun off its investment bank into a separate business called CS First Boston, raised CHF 4 billion in capital through a new share issue and rights issue, and created a capital release unit to end lower returns, non-strategic business.
The aim is to reduce risk-weighted assets and leverage exposure by 40% each during the restructuring process, while the bank also plans to allocate “nearly 80% of capital to wealth management, Swiss banks, asset management and markets” by 2025. “
“Our new integrated model, centred on our wealth management franchise, strong Swiss banking and asset management capabilities, is designed to allow us to offer clients and colleagues a unique and compelling proposition, while delivering organic growth for shareholders and capital creation,” new CEO Ulrich Korner said in a statement.
“The new Executive Committee is focused on restoring trust through the tireless and responsible implementation of our new strategy, where risk management remains at the heart of everything we do.”
Koerner took the helm in July after the resignation of his predecessor, Thomas Gottstein, after the bank posted a second-quarter net loss of 1.593 billion francs, well below analysts’ consensus estimates.
Credit Suisse has been plagued by sluggish investment banking revenue over the past year, losses from pulling out of its Russian operations and litigation costs related to a series of legacy compliance and risk management failures, most notably the Archegos hedge fund scandal.
Here are some other financial highlights from the third quarter:
- Group revenue reached CHF 3,804 million, down from CHF 5,437 million in the same period last year.
- The CET1 capital ratio, which measures the bank’s solvency, was 12.6%, compared with 14.4% a year earlier and 13.5% in the previous quarter.
- Return on tangible equity was -38.3%, down from -15% in the second quarter and 4.5% in the third quarter of 2021.
This is a developing news story that will be updated soon.