Credit Suisse, Switzerland's second-largest bank, saw a massive withdrawal of funds in the first quarter of 2023, with over $68 billion Swiss francs ($68.6 billion) taken out by clients.
The bank's latest earnings report also revealed that it had deceptively inflated net profits for the quarter after its high-risk debts were wiped out in the impending merger with UBS, stated a news report in NDTV. However, Credit Suisse warned of significant losses to come, as it faces urgent restructuring challenges under its new ownership.
The announcement came as UBS prepares to take over the struggling bank in an emergency merger, following a series of scandals over the past few years. Last month, Swiss authorities strong-armed UBS into the shotgun marriage, leaving investors eagerly awaiting the latest results as a barometer of the challenges ahead for Switzerland's largest bank.
Asset Outflows
Credit Suisse reported that "significant net asset outflows" were particularly heavy in the second half of March, when it was engulfed by panic in the days surrounding the hastily arranged takeover. Although the outflows have moderated, they have not yet reversed as of April 24, 2023, the bank said in its earnings statement. Over the past six months, Credit Suisse's wealth management division alone has seen 140 billion francs in net new money outflows, and this follows the 110.5 billion francs in outflows in the fourth quarter of 2022.
Adjusted Pre-Tax Loss
Despite a reported net profit for the first quarter, Credit Suisse suffered an adjusted pre-tax loss of 1.3 billion Swiss francs ($1.5 billion). The bank warned that it expects to see a substantial pre-tax loss in its investment bank unit and overall in the second quarter and full year of 2023, given the merger announcement, adverse revenue impact from the previously disclosed exit from non-core businesses and exposures, restructuring charges, and funding costs.
Cancelled Acquisition
Credit Suisse also said that it had cancelled a deal to acquire the investment advisory business of M Klein & Company, which it had planned to fold into the First Boston brand as part of its investment bank overhaul. The bank said that the sides had "mutually agreed to terminate" the $175-million acquisition "considering Credit Suisse's recently announced merger with UBS."
Impact of Mega Merger Deal
Swiss authorities required Credit Suisse to wipe out close to $17.9 billion in so-called additional tier 1 (AT1) bonds before Switzerland's two biggest banks united. The bank's quarterly results were also boosted by the $700-million sale of a significant part of its Securitized Products Group to Apollo Global Management. However, Credit Suisse warned that it expected to see a "substantial" pre-tax loss in its investment bank unit and overall in the second quarter and full year of 2023.
Analyst's Assessment
Andreas Venditti, an analyst at Vontobel, warned that Credit Suisse's report "reveals the bad shape the firm is in," and that "UBS undoubtedly faces a major (and urgent) task in deeply restructuring its former competitor." Analysts with the Zurich Cantonal Bank stressed that Credit Suisse's outflows for the quarter were "less than feared."
