Can Credit Suisse be saved?

Thu, Oct 27th 2022

Credit Suisse was founded in 1856 in Zürich.

After months of speculation as to how badly Credit Suisse Group AG is floundering, the investment bank today posted a net loss of CHF 4.03 billion for its third quarter of 2022 – 3.7 billion of which is deferred tax assets earmarked for a total revamp. It is the fourth consecutive quarterly loss for the bank.

In the weeks leading up to today’s announcement, Credit Suisse has endured plummeting stock prices and rumors that the bank may be splitting. Wealthy clients have fled in droves, taking an estimated CHF 12.9 billion with them. Bank officials have scrambled to maintain face since August, saying that an announcement on October 27^th would reignite confidence in the bank.

A look at Credit Suisse’s stock over the past five years.

A series of unfortunate events

Switzerland’s second largest bank has been plagued by years of scandals, court cases, and record-breaking losses.

The bank dropped from a profit of CHF 2.7 billion in 2020 to a loss of CHF 1.65 billion in 2021, mostly due to bad investments in failed supply chain group Greensill and hedge fund group Archegos. In the 2021 collapse of the hedge fund, U.S. authorities have charged Archegos’ founder Bill Hwang and three colleagues with racketeering and fraud charges. (Read more: CEO confident amidst plummeting stock)

In October of 2021, U.S. and U.K. authorities handed down a verdict that Credit Suisse must pay CHF 439 million to resolve a Mozambican corruption scandal which included bribery and fraud charges. The same week, the Swiss Financial Market Supervisory Authority announced it had discovered “serious organization shortcomings” in its investigation into a corporate espionage case that began with a 2020 audit of the bank. According to the investigation, Credit Suisse spied on members of its board and former employees. (Read more: Credit Suisse in turmoil)

By fall of 2022, bad headlines became synonymous with the bank and #DebitSuisse was trending on Twitter.

Axel Lehmann was brought on as chairman of the bank in January of this year.

What’s on the horizon

The bank has lost its focus in recent years and badly needs a “radical strategy and a clear execution plan to create a stronger, more resilient and more efficient bank with a firm foundation,” according to Chairman Axel Lehmann who led today’s announcement. Over the next three years, Credit Suisse will sell its structured products group, cut thousands of jobs, and inject CHF 4 billion into its capital.

The bank will implement a new operations strategy intended to bring down costs by 15 percent by the end of 2025. Under that strategy, the bank will focus more on its wealth management sector and its Swiss-based operations. Its wealth management sector posted a pretax profit of CHF 21 million in the last quarter, a nearly 95 percent drop since 2021.

It will also implement a “capital release unit” to sell off risky assets. As an appetizer, the bank will sell off its CHF 328 million stake in the Spanish financial tech company Allfunds. In an effort to further reduce risk, Credit Suisse will sell off big portions of its investments, mostly those based in the U.S.

The bank has already begun its CHF 4 billion fundraising campaign to shore up its shaky capital base with CHF1.5 billion from Saudi National Bank – although the investment is subject to approval during a general meeting scheduled for the end of November.

Credit Suisse will also let go of at least 9,000 employees by the end of 2025 – reducing its headcount from 52,000 to 43,000. About 2,700 pink slips will go out immediately, officials announced today.

As to how the bank will buoy low investor confidence remains to be seen. The wariness over the once flourishing bank’s viability fueled major outflows in the first weeks of October.

“While these outflows have stabilized since this period, they have not yet reversed,” the bank said in today’s report. Moreover, the bank warned investors to be prepared for another record another loss in the fourth quarter of 2022.

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