Credit Suisse Expects to Report Loss11.23.2022
Credit Suisse Group AG (Credit Suisse) has commenced rapid implementation of actions to create the new Credit Suisse, consistent with the strategic plans detailed on October 27, 2022. These decisive measures are expected to result in a radical restructuring of the Investment Bank, an accelerated cost transformation, and strengthened and reallocated capital, each of which are progressing at pace. The bank is informing the market on its updated outlook for the fourth quarter of 2022 and as part of its equity raise process.
In its Outlook statement on October 27, 2022, the bank highlighted that the challenging economic and market environment has had an adverse impact on client activity across its divisions. In particular, the Investment Bank has been impacted by the substantial industry-wide slowdown in capital markets and reduced activity in the Sales & Trading businesses, exacerbating normal seasonal declines, and the Group’s relative underperformance. In addition, client activity remains subdued in the Wealth Management and Swiss Bank divisions, and the bank expects these market conditions to continue in the coming months.
As previously disclosed, Credit Suisse began experiencing deposit and net asset outflows in the first two weeks of October 2022 at levels that substantially exceeded the rates incurred in the third quarter of 2022. At the Group level, as of November 11, 2022, net asset outflows were approximately 6% of assets under management at the end of the third quarter of 2022. In Wealth Management, these outflows have reduced substantially from the elevated levels of the first two weeks of October 2022 although have not yet reversed and were approximately 10% of assets under management at the end of the third quarter of 2022. In the Swiss Bank, these client balances have stabilized and were approximately 1% of assets under management at the end of the third quarter of 2022.
As announced on October 27, 2022, these outflows have led the bank to partially utilize liquidity buffers at the Group and legal entity level, and while the bank has fallen below certain legal entity-level regulatory requirements, the core requirements of the liquidity coverage ratio (LCR) and the net stable funding ratio (NSFR) at the Group level have been maintained at all times. The Group’s average daily LCR for the fourth quarter to-date (as of November 18, 2022) was 140%, with spot rates broadly stabilizing between ~120% to ~130% since the October 27, 2022 results announcement.
Credit Suisse is executing on its strategic commitments to strengthen its balance sheet and reduce risk, engaging clients proactively and accessing the public and private markets, including the recent issuance of approximately USD 5 billion through two bond sales, which saw strong investor demand. Key steps taken include the recently announced sale of a significant part of Credit Suisse’s Securitized Products Group (SPG) and other related financing businesses to Apollo Global Management1, which together with the contemplated sale of other portfolio assets to third-party investors is expected to reduce SPG assets from USD 75 billion2 to approximately USD 20 billion by mid-2023. These actions and other deleveraging measures including, but not limited to, in the non-core businesses, are expected to strengthen liquidity ratios and reduce the funding requirements of the Group.
The bank is also making strides in reducing the Group’s cost base3 by 15%, or CHF ~2.5 billion, in 2025, including through a targeted reduction of CHF ~1.2 billion for 2023. Actions to reduce headcount by 5% have been initiated, with reductions to other non-compensation related costs currently underway. As previously announced on October 27, 2022, the bank would expect to incur restructuring charges, software and real estate impairments of CHF ~250 million as part of the cost of this strategic transformation in the fourth quarter 2022.
Strategic actions taken to significantly reduce the Group’s risk profile are expected to be reflected in near-term financial results. Consistent with its announced divestment strategy, the bank disposed of its shareholding in Allfunds Group plc, and expects to record a CHF ~75 million loss related to the sale. Lower deposits and assets under management are expected to lead to reduced net interest income and recurring commissions and fees; this is likely to lead to a loss for Wealth Management in the fourth quarter of 2022. Together with the adverse revenue impact from the previously disclosed exit from the non-core businesses and exposures, and as previously announced on October 27, 2022, Credit Suisse would expect the Investment Bank and the Group to report a substantial loss before taxes in the fourth quarter 2022, of up to CHF ~1.5 billion for the Group. The Group’s actual results will depend on a number of factors including the Investment Bank’s performance for the remainder of the quarter, the continued exit of non-core positions, any goodwill impairments, and the outcome of certain other actions, including potential real estate sales. The Group confirms the capital ratio guidance communicated on October 27, 2022. The Group is targeting a 2025 pre-Basel III reform CET1 ratio of more than 13.5%, while expecting to maintain a pre-Basel III reform CET1 ratio of at least 13% throughout the transformation period in 2023 through 2025.
The Group continues to execute on the decisive strategic actions detailed on October 27, 2022, to create a simpler, more focused and more stable bank – a new Credit Suisse.
Source: Credit Suisse
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