Credit Suisse reshuffles management after posting another quarterly loss

Swiss lender is struggling with litigation costs and fallout from the Russia-Ukraine war

Swiss bank Credit Suisse's sustained losses signal that its goal of making 2022 a period of transition to stability is at risk. Reuters
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Credit Suisse Group reported a bigger-than-expected loss, parted ways with three senior executives and said the full damage from one of the most turbulent periods in the bank’s history is still to be accounted for.

The Zurich-based bank posted a net loss of 273 million Swiss francs ($284m) in the first quarter of the year, driven by 703m francs in total legal expenses as well as a charge related to Russian exposure.

Wealth management results came in weaker than expected and trading revenue suffered a bigger hit than most peers.

The sustained losses signal the bank’s goal of making 2022 a period of transition to stability is at risk, following last year’s multi-billion dollar hits linked to Archegos Capital Management and Greensill Capital.

That has prompted further blood-letting, with the departure of chief financial officer David Mathers, chief counsel Romeo Cerutti, as well as Asia head Helman Sitohang announced on Wednesday.

“I am confident that we are well positioned to build a stronger and client-centric bank that puts risk management at the core to deliver sustainable profit and value for investors, clients and colleagues,” Thomas Gottstein, chief executive of Credit Suisse, said.

In its outlook, the bank warned that it expects “continued significant remediation spend in risk, compliance and infrastructure”.

The lender is also working through a string of legal cases from a Bermuda lawsuit involving a local insurance unit to upcoming battles with investors over the frozen supply-chain finance funds linked to Greensill.

Earlier this month, the bank said investors in those funds should brace for a five-year fight with insurers and problem borrowers to get their money back.

The bank said it would hold a “deep dive” event for investors on risk, compliance, technology and wealth-management before second-quarter earnings this year.

Mr Mathers said the bank is “working through a backlog” of cases, and would not expect to see the same level of litigation provisions every quarter as has been posted in this release.

In wealth management, the bank posted a pre-tax loss of 357m francs, worse than the estimated 22.7m franc profit.

Volatile market conditions, client risk aversion and its own reduced risk appetite contributed to the loss along with the litigation costs, the bank said. Net new client asset inflows reached 7.9 billion francs, according to a statement on Wednesday.

In the investment bank, which houses the business of advising on mergers and acquisitions, Credit Suisse reported $124m in pretax profit, missing estimates. The bank had already said capital markets activity had slowed in the quarter.

Mr Mathers, 56, will be leaving the bank once a replacement has been found, while Edwin Low takes over as head for the Asia-Pacific region from Mr Sitohang, the current head, who is staying on as a senior advisor.

Ex-UBS Group top lawyer Markus Diethelm becomes the new chief legal officer, replacing Mr Cerutti who will retire, according to a statement on Wednesday. The bank also said Francesca McDonagh will become chief executive of the Europe, Middle East and Africa region in October. That position had been held by wealth head Francesco de Ferrari on an interim basis.

The negative results and outlook come just ahead of the bank’s annual general meeting on Friday, at which some shareholders are set to increase pressure for more transparency into the collapse of the Greensill funds.

The investment bank missed out on trading revenues due to its limited exposure to areas such as interest rate trading, which saw the most activity in the first quarter.

Fixed income trading revenues were down 50 per cent year-on-year, steeper than Wall Street peers, and equities trading revenues were down 47 per cent, largely still due to the bank’s exit of prime brokerage services and lower cash trading volumes. Capital markets revenues fell 66 per cent and the advisory business was down 14 per cent, in line with the less-favourable environment for dealmaking.

Credit Suisse reported losses of 206m francs on exposure to Russia’s military offensive in Ukraine. In line with many peers, the bank has stopped all new business in Russia and is cutting its exposure to the country. Mr Gottstein said about 4 per cent of assets in the wealth unit were with Russian clients.

The wealth business, which is reporting as a global unit for the first time after being restructured late last year, reported new wealth assets of 4.6bn francs, with the biggest contribution coming from Switzerland. Asia Pacific contributed 1.8bn francs in net new assets. That compares with net new fee-generating assets of $19.4bn at Swiss rival UBS.

The bank saw weaker trading revenues from its wealthy clients, with transaction-based revenues down 22 per cent on an adjusted basis and steeper than at UBS. Credit Suisse cited lower brokerage fees and structured product revenues due to the challenging market conditions in the first quarter.

UBS, which reported first quarter earnings on Tuesday, said it is seeing continued caution from investors in the Asia Pacific region amid global geopolitical uncertainty and Covid-19-related restrictions. It saw a net deleveraging of $3.1bn of loans in Asia this quarter and overall transaction-based revenues for its wealth unit plummet 19 per cent.

Updated: May 17, 2023, 3:29 PM