Wed, Nov 23rd 2022
Credit Suisse continues to struggle in its fourth quarter of 2022. The Swiss financial institution announced Wednesday that it may lose up to $1.6 billion in Q4 as it implements a three-year strategy to overhaul the bank.
The Zürich-based bank has endured months of bad headlines and decreasing profits.
Credit Suisse Group AG announced today that it may lose up to 1.5 billion Swiss francs ($1.6 billion) in its fourth quarter of 2022 – a blow after months of scandals, plummeting stocks, and decreasing client confidence.
Officials from the Zurich-based bank said the downturn is mostly due to market conditions, selling off parts of its business, and a continuous outflow of customer assets. Asset outflows in the third quarter totaled about CHF 84 billion. Credit Suisse’s outflows in wealth management “have reduced substantially from the elevated levels of the first two weeks of October 2022, although have not yet reversed and were approximately 10% of assets under management at the end of the third quarter of 2022,” according to the bank.
Rival banks UBS and Credit Suisse are neighbors on Zürich’s Paradeplatz.
A series of unfortunate events
Switzerland’s second largest bank has been plagued by years of 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.
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. According to the investigation, Credit Suisse spied on members of its board and former employees. By fall of 2022, bad headlines became synonymous with the bank and #DebitSuisse was trending on Twitter.
One ounce of Credit Suisse’s gold, or about $1,740.
A radical shake-up
At a shareholder’s meeting at the end of October, Credit Suisse announced that over the next three years it will sell its structured products group, cut 9,000 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. 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 said in today’s announcement that the actual results of the fourth quarter will depend on “a number of factors” such as asset sales, goodwill investments, and the slashing of non-core positions. The bank will “definitely” be profitable in 2024 Chief Executive Officer Ulrich Koerner said in October.
Insiders told reporters most of the Credit Suisse layoffs in China have occurred in its Shanghai offices.
Massive layoffs in China
As part of the bank’s planned 2,700 employee cuts, Credit Suisse has already laid off about one-third of its China-based employees, including 40% of its research staff. The move is a bold one considering that just two months ago the bank announced it would invest $160 million to take full ownership of its securities business in China. Credit Suisse is still awaiting final approval on that matter. Moreover, Former Chief Executive Officer Thomas Gottstein in 2021 vowed to triple the firm’s headcount in China to gain market share. That announcement was made before the full effects of the Covid-19 pandemic were realized in the country.
China has seen a nearly 90% drop in overseas stock sales, thanks to its harsh Covid Zero policies. The second largest global economy is set to see a $100 billion foreign portfolio outflow in 2022, compared with a $200 billion inflow in 2020 to 2021, according to Morgan Stanley.
As Credit Suisse struggles to right its floundering ship, investors and employees should continue to brace for impact.
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