Credit Suisse anticipates a loss of $1.6 billion as rich customers withdraw assets

Bank lost approximately $89 billion during the fourth quarter, including 10% of wealth management assets.

Credit Suisse has projected a pre-tax loss of up to SFr1.5 billion ($1.6 billion) in the fourth quarter, with the Swiss bank saying that wealthy clients had withdrew up to 10 percent of their assets since October's beginning.

The bank stated in its fourth profit warning since January that the scale of client outflows, which followed social media rumours about its financial health, had caused the bank to deplete its liquidity buffers at the group and legal entity levels. Credit Suisse stated that it had "failed to meet certain regulatory standards applicable to legal entities."

“Credit Suisse began experiencing deposit and net asset outflows in the first two weeks of October 2022 at levels that substantially exceeded the rates incurred in the third quarter of 2022,” the bank said in a statement.

At the conclusion of the third quarter, the wealth management division had outflows amounting to 10% of assets under management, or approximately SFr63.5 billion.

The bank lost around SFr84 billion ($89 billion) in assets as customers in wealth management, asset management, and retail banking shifted their cash holdings, investments, and deposits to competitors.

Kian Abouhossein, an analyst at JPMorgan, cautioned, "Credit Suisse has not yet stabilised its franchise."

“Wealth management outflows at 10 per cent of assets under management in the fourth quarter (until 11 November) are very material at a level seen by UBS in the global financial crisis on an annualised basis and not in one quarter.”

The bank's stock plunged 6% in trade on Wednesday to SFr3.62, its lowest price in at least 30 years, and is down 60% this year.

At an extraordinary shareholder meeting on Wednesday morning, more than 90 percent of Credit Suisse shareholders voted in favour of the bank raising SFr4bn from investors, notably the Saudi National Bank, to help fund a dramatic restructuring of the business.

Axel Lehmann, chairman of Credit Suisse, stated that "this vote is a significant milestone in the construction of our new Credit Suisse."

The Swiss bank announced earlier on Wednesday that its wealth management division would likely incur a loss due to a decline in net interest revenue due to fewer deposits and fees.

In addition, it anticipates that the investment bank will incur a considerable loss before taxes due to a "substantial industry-wide downturn in capital markets."

“The massive net outflows in wealth management — Credit Suisse’s core business alongside the Swiss bank — are deeply concerning, even more so as they have not yet reversed,” said Vontobel analyst Andreas Venditti.

“The resulting significant assets under management decline will reduce our revenue and long-term profit estimates. Credit Suisse needs to restore trust as fast as possible — but that is easier said than done,” he added.

The bank also reaffirmed its capital ratio guidance set the previous month, aiming for a common equity tier one ratio — a measure of financial resilience — of at least 13% from 2023 to 2025 and at least 13.5% by 2025.

It disclosed, however, that its liquidity capital ratio, which indicates its ability to endure short-term stress, had decreased from 192% at the end of September to an average of 140% daily since then. The bank is required by regulators to maintain a capital ratio above 100 percent.

To help it recover from scandals and an SFr4bn third-quarter deficit, the bank published its reorganisation plan last month, which included slicing up and spinning off its investment bank, slashing thousands of workers, and raising $4bn in capital.

The bank stated that it anticipated a loss of SFr75 million on the sale of its stake in Allfunds Group.

By fLEXI tEAM