Switzerland’s second largest bank Credit Suisse is seen here next to a Swiss flag in downtown Geneva.
Fabrice Coffrini | AFP | Getty Images
Credit Suisse on Thursday posted a quarterly loss that was significantly worse than analyst estimates, as it announced a massive strategic overhaul.
The embattled lender posted a third-quarter net loss of 4.034 billion Swiss francs ($4.09 billion), compared to analyst expectations for a loss of 567.93 million Swiss francs. The figure was also well below the 434 million Swiss franc profit posted for the same quarter last year.
The bank noted that the loss reflected a 3.655 billion Swiss franc impairment relating to the “reassessment of deferred tax assets as a result of the comprehensive strategic review.”
Under pressure from investors, the bank revealed a major overhaul of its business in a bid to address underperformance in its investment bank and following a raft of litigation costs that have hammered earnings.
In its widely anticipated strategic shift, Credit Suisse vowed to “radically restructure” its investment bank to significantly cut its exposure to risk-weighted assets, which are used to determine a bank’s capital requirements. It also aims to cut its cost base by 15%, or 2.5 billion Swiss francs, by 2025.
Credit Suisse expects to incur restructuring charges of 2.9 billion Swiss francs by the end of 2024.
The transformation plan will see Credit Suisse split off its investment bank into an independent business called CS First Boston, raise 4 billion Swiss franc in capital through the issuance of new shares and a rights offering, and create a capital release unit to wind down lower-return, non-strategic businesses.
The aim is to reduce risk-weighted assets and leverage exposure by 40% each over the course of the restructure, while the bank also set out to allocate “almost 80% of capital to Wealth Management, Swiss Bank, Asset Management and Markets by 2025.”
“Our new integrated model, with our Wealth Management franchise, strong Swiss Bank and capabilities in Asset Management at its core, is designed to allow us to deliver a unique and compelling proposition for clients and colleagues while targeting organic growth and capital generation for shareholders,” new CEO Ulrich Koerner said in a statement.
“The new Executive Board is focused on restoring trust through the relentless and accountable delivery of our new strategy, where risk management remains at the very core of everything we do.”
Koerner took the helm in July following the resignation of predecessor Thomas Gottstein, after the bank booked a second-quarter net loss of 1.593 billion Swiss francs, far below consensus expectations among analysts.
Credit Suisse has been plagued over the past year by sluggish investment banking revenues, losses from the withdrawal of its business in Russia and litigation costs relating to a host of legacy compliance and risk management failures, most notably the Archegos hedge fund scandal.
Here are some other financial highlights for the third quarter:
- Group revenue hit 3.804 billion Swiss francs, down from 5.437 billion Swiss francs for the same period last year.
- CET1 capital ratio, a measure of bank solvency, was 12.6%, compared to 14.4% at the same time last year and 13.5% in the previous quarter.
- Return on tangible equity was -38.3%, down from -15% in the second quarter and 4.5% in the third quarter of 2021.
This is a developing news story and will be updated shortly.