Zurich, Frankfurt Credit Suisse boss Ulrich Körner is combative: “Our employees in asset management are completely convinced that they can retrieve all lost customer funds.” The bank has started a customer return campaign that is unique in the history of the financial institution, Körner said on Thursday the presentation of the annual balance sheet. The response is positive: “Our customers want us to be successful.”
However, the markets do not share the bank boss’s optimism. The share is listed on the Zurich stock exchange in the afternoon, eight percent lower, just below the three franc mark. In the meantime, the rate was 2.87 francs.
Investors were shocked that Credit Suisse customers had withdrawn around CHF 111 billion in assets in the fourth quarter. Anke Reingen, analyst at the investment bank RBC Capital Markets, noted in a recent study: “The net outflow of funds was significantly higher than expected.”
Since the fourth quarter of 2022, Credit Suisse has been struggling with a crisis of confidence unprecedented in the bank’s history: Triggered by unfounded speculation on social media about an impending collapse of the bank, customers began withdrawing funds on a large scale at the end of October. To this day, this is a burden on the strategic reorientation of the bank, which became necessary after a long and expensive series of scandals.
The case is a reminder to the entire industry: In crisis situations, it doesn’t take much to get even a systemically important bank into serious difficulties.
The crisis of confidence caused a deep hole in the balance sheet, as the figures published on Thursday show: the loss for the year as a whole was around 7.3 billion francs, of which 1.3 billion in the fourth quarter. It was the biggest loss since the 2008 financial crisis. The bank also expects a “significant loss” this year.
Körner tried to spread optimism.
(Photo: via REUTERS)
Adjusted net income fell by almost a third, from CHF 22.5 billion in 2021 to CHF 15.1 billion now. Körner tried to convey the picture to analysts and investors that the worst was over: “In my opinion, the situation has changed completely.”
But in important regions such as the Swiss home market or the Asia-Pacific region, inflows are already being recorded again. Körner could not be elicited how much money Credit Suisse is taking to win back client assets. Just this much: “We are competitive – but we are not buying back assets. That would not be sustainable.”
However, observers remain skeptical: Andreas Venditti, analyst at Vontobel, says: “Trust is hard to gain but easy to lose.” He was not convinced that a social media campaign alone can have such serious consequences: “If rumors and tweets could trigger such a dramatic market reaction, there must have been a lot of distrust.”
Credit Suisse is hit by the crisis of confidence in several ways: on the one hand, the withdrawal of client funds reduces the regular fee income in the core business, asset management. At the same time, the bank benefits less from a rising interest margin than competitors such as UBS, Julius Baer and Vontobel.
The bottom line was a loss before taxes in wealth management from October to December of 199 million francs, for the whole of 2022 the pre-tax loss totaled 631 million francs. For comparison: in 2021, the bank was still able to post a pre-tax profit of CHF 2.3 billion in its core business.
In addition, the capital costs for the money house increased significantly: the rating agencies downgraded the creditworthiness of the bank. Yields on Credit Suisse subordinated bonds temporarily climbed to over twelve percent at the end of 2022. And the premiums for default insurance for Credit Suisse debt rose at times to over 400 basis points.
This means that investors who want to protect themselves against credit defaults with Credit Suisse for five years have meanwhile paid more than four percent of the sum to be insured as a premium. Since then, however, bond yields and credit derivative risk premiums have recovered.
But the still high level is a heavy burden for the Credit Suisse business model. The associated higher refinancing costs are not the only reason for this. “In capital markets business and wealth management, a bank’s ratings and their risk premiums on credit derivatives play an important role,” said a senior bank manager. “Many large companies and institutional investors depend on these indicators whether and how much business they do with a bank.”
The top manager of a large Swiss wealth manager confirmed privately that his company had to withdraw liquidity from business accounts at Credit Suisse due to internal risk management requirements.
Doubts about the bank overturn the sale of a property
Credit Suisse also limited the doubts about the solidity of the opportunities to raise fresh capital, for example through real estate sales. The major bank temporarily sounded out the sale of the Uetlihof, an office complex in Zurich where thousands of bankers work. The deal could have brought in billions. The insurance group Swiss Life, the largest real estate investor in Switzerland, was also interested at times.
Paolo Di Stefano, head of the Swiss real estate business at Swiss Life, recently confirmed to journalists with rare openness: “We took a very close look at the Uetlihof.” Together with the Norwegian sovereign wealth fund, an investment was considered. The problem, according to Di Stefano, is that the office complex is tailored to the needs of Credit Suisse and is difficult to use for other purposes. “You have to do a creditworthiness analysis of the tenant.” The result: “That was too risky for us.”
Credit Suisse is trying to dispel the impression that high premiums on credit derivatives are holding the bank back. Jens Haas, head of investment banking in Switzerland, recently said at a press conference that credit default insurance is “a fairly inefficient market and a poor representation of the underlying credit quality”. He emphasized: “This has no significant impact on our business model.”
Haas was also confident that his team would be spared the clear cut in investment banking. The division had to cope with a group-wide drop in income by 55 percent and accumulated losses of 3.2 billion francs. Credit Suisse is therefore separating the investment bank from the group and merging it with the boutique of former board member Michael Klein. In return, he will receive around 200 million dollars – but wants to invest a large part back into the business and also bring external investors on board.
Only investment banking in Switzerland is left out of the restructuring. Manager Haas’ team docks with the Swiss universal bank. From there, the Haas team supports, for example, large corporations such as Roche or Nestlé in issuing bonds or advises Novartis on the spin-off of the Sandoz generics division. “That’s part of the core business,” emphasizes Haas. Therefore, his troops are also “virtually exempt” from job cuts.
The Swiss business for which André Helfenstein is responsible is one of the few bright spots in Credit Suisse’s balance sheet. In the past year, the division made a profit of 1.4 billion francs. The domestic market plays a key role in the battle for customer trust and assets.
More: Credit Suisse is targeting strong growth for subsidiary CSFB.