Business slowed in its wealth-management and trading divisions, says scandal-hit lender
25 January 2022 - 16:24
by Brenna Hughes Neghaiwi
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The logo of Swiss bank Credit Suisse is seen at a branch office in Zurich on November 3 2021. Picture: REUTERS/ARND WIEGMANN
Credit Suisse warned on Tuesday that it will post a fourth-quarter loss as the scandal-hit lender flagged new legal costs and said business in its trading and wealth management divisions has slowed.
Switzerland’s second-largest lender announced plans in November to rein in its investment bankers and plough money into looking after the fortunes of the world’s rich as it tries to curb a freewheeling culture that cost it billions.
It said the investment bank will post a loss in the final quarter of the year, while the wealth management business has seen an overall drop in assets.
On top of previously announced charges, Credit Suisse will make a new Sf500-million legal provision to settle legacy cases related to the investment bank, putting it on track for an overall quarterly loss of about Sf1.6bn.
“The cleaning up of legacy burdens from investment banking is threatening to become a never-ending story,” analysts at Zuercher Kantonalbank said in a note. They said they see no reason to invest in the bank’s shares, which were about 0.5% lower by 11am.
Credit Suisse has been trying to turn the page on a slew of negative headlines and reform its risk management culture, an effort set back by the abrupt departure of the chair brought in just nine months earlier to lead that transformation. It said the investment bank has been affected by a slowdown in transaction-based revenue.
Risk appetite
“Combined with the reduction in our overall risk appetite, including our decision to substantially exit our prime services business, this has resulted in a loss for the fourth quarter 2021 in the Investment Bank division,” the lender said.
It said its core wealth management businesses will also be hit by a slowdown in transactions, resulting in “modestly negative” net new assets for those businesses.
“While we already expected lower transaction and trading revenues, the declines are likely [to be] larger than estimated. In addition, we might also have been somewhat optimistic on costs,” Vontobel analysts wrote.
Credit Suisse pointed to a slowdown in Asia and a reversion to more normal trading conditions after the bumper activity that prevailed for much of 2020 and 2021.
Major US banks also flagged last week that the huge uptick in trading volumes during the pandemic was starting to moderate as expectations for a series of US interest rate hikes and a rise in consumer spending tempered investment rates.
Asset management
Investors and analysts are waiting to see how the bank’s troubles, including two major scandals in March 2021, will affect Credit Suisse’s client relationships.
On Tuesday, it said its asset management business, hit at the time by the collapse of $10bn in funds linked to insolvent supply chain finance firm Greensill, had inflows in the last quarter of 2021, helping “more than offset” the outflows from wealth management.
For the first nine months of 2021, Credit Suisse reported a net profit of Sf435m, down nearly 86% year on year. Pretax income stood at Sf1.064bn.
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
Credit Suisse flags fourth-quarter loss, legal costs
Business slowed in its wealth-management and trading divisions, says scandal-hit lender
Credit Suisse warned on Tuesday that it will post a fourth-quarter loss as the scandal-hit lender flagged new legal costs and said business in its trading and wealth management divisions has slowed.
Switzerland’s second-largest lender announced plans in November to rein in its investment bankers and plough money into looking after the fortunes of the world’s rich as it tries to curb a freewheeling culture that cost it billions.
It said the investment bank will post a loss in the final quarter of the year, while the wealth management business has seen an overall drop in assets.
On top of previously announced charges, Credit Suisse will make a new Sf500-million legal provision to settle legacy cases related to the investment bank, putting it on track for an overall quarterly loss of about Sf1.6bn.
“The cleaning up of legacy burdens from investment banking is threatening to become a never-ending story,” analysts at Zuercher Kantonalbank said in a note. They said they see no reason to invest in the bank’s shares, which were about 0.5% lower by 11am.
Credit Suisse has been trying to turn the page on a slew of negative headlines and reform its risk management culture, an effort set back by the abrupt departure of the chair brought in just nine months earlier to lead that transformation. It said the investment bank has been affected by a slowdown in transaction-based revenue.
Risk appetite
“Combined with the reduction in our overall risk appetite, including our decision to substantially exit our prime services business, this has resulted in a loss for the fourth quarter 2021 in the Investment Bank division,” the lender said.
It said its core wealth management businesses will also be hit by a slowdown in transactions, resulting in “modestly negative” net new assets for those businesses.
“While we already expected lower transaction and trading revenues, the declines are likely [to be] larger than estimated. In addition, we might also have been somewhat optimistic on costs,” Vontobel analysts wrote.
Credit Suisse pointed to a slowdown in Asia and a reversion to more normal trading conditions after the bumper activity that prevailed for much of 2020 and 2021.
Major US banks also flagged last week that the huge uptick in trading volumes during the pandemic was starting to moderate as expectations for a series of US interest rate hikes and a rise in consumer spending tempered investment rates.
Asset management
Investors and analysts are waiting to see how the bank’s troubles, including two major scandals in March 2021, will affect Credit Suisse’s client relationships.
On Tuesday, it said its asset management business, hit at the time by the collapse of $10bn in funds linked to insolvent supply chain finance firm Greensill, had inflows in the last quarter of 2021, helping “more than offset” the outflows from wealth management.
For the first nine months of 2021, Credit Suisse reported a net profit of Sf435m, down nearly 86% year on year. Pretax income stood at Sf1.064bn.
Reuters
Credit Suisse hits another bump as chair quits over Covid-19 rules
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