In the current crisis, the financial institution is also cutting the remuneration of management.
(Photo: Reuters)
Zurich The major Swiss bank Credit Suisse has identified “material deficiencies” in its financial reporting for the 2021 and 2022 financial years and has begun work to remedy them. In those two years, “the group’s internal controls over financial reporting were inadequate,” Credit Suisse said in its annual report released on Tuesday. “As a result, management has also determined that our disclosure controls and procedures were not adequate.”
The bank was forced to delay the release of its annual report last week after last-minute inquiries from the US Securities and Exchange Commission. The key deficiencies identified relate to a failure to prepare and maintain effective risk assessments in the accounts, the bank said. The SEC found these omissions after errors in the cash flow statement surfaced in 2019 and 2020.
The auditor of Credit Suisse, the auditing company PwC, is now also reacting to the SEC intervention. She gave a so-called negative opinion on the effectiveness of internal controls over financial reporting. Nevertheless, PwC has given the major bank an unqualified certificate.
Customers and investors are unsettled
The failures identified in the internal controls therefore had no effect on the figures themselves. Customers and investors are nevertheless unsettled: the bank announced that it was continuing to struggle with outflows of customer funds.
The pace at which customers are withdrawing their assets has slowed significantly compared to the fourth quarter of 2022, but has not yet reversed into inflows. Last year, customers withdrew 123 billion francs from their accounts at Credit Suisse, most of it in October and November.
Credit Suisse shares were again down up to five percent on Tuesday after the share had already fallen by almost ten percent at times on Monday. Investors are focusing on possible contagion effects from a banking crisis in the USA, record high financing costs for the bank and falling earnings in the core business, wealth management, in view of the dwindling number of customers.
The postponement of the annual financial statements by a week was another setback for the bank. The intervention by the US Securities and Exchange Commission makes it clear above all that US supervisors are taking a tougher approach to Credit Suisse. PwC has been the bank’s auditor since 2020. In previous years, the auditors had not identified any deficiencies in Credit Suisse’s financial reporting.
The financial result could hardly have been worse anyway: With a loss of CHF 7.3 billion, Credit Suisse recorded one of the weakest years in its 167-year history in 2022. Above all, the costs for the restructuring and the collapse of income in investment banking weighed on the result. The group expects a significant pre-tax loss in the current year as well.
Credit Suisse cancels manager bonuses
The bank’s current crisis is also affecting the management team. The group management around CEO Ulrich Körner will not receive a bonus this year, as can be seen from the annual report published on Tuesday. Körner, who was promoted to CEO at the end of July, receives a salary of CHF 2.5 million. After a bonus cut for 2021, his predecessor Thomas Gottstein received a total salary of CHF 3.75 million.
Salaries are also falling for the rest of the management team: the 18 members of management will receive a total of CHF 32.2 million for 2022. In the previous year, fixed salaries and bonuses for top management totaled CHF 38.1 million.
Chairman of the Board of Directors Axel Lehmann also waived part of his fee. Lehmann was awarded remuneration of three million francs for the period from April 2022 to April 2023. A lower total compensation will be proposed at the Bank’s Annual General Meeting for the following term of office. The bank plans to increase the equity component of the president’s compensation from 33 to 50 percent.
This should increase the financial incentives for a successful turnaround. Credit Suisse shares are currently trading close to their all-time low of CHF 2.17.
With material from Reuters and Bloomberg.
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