02.10.2022

Credit Suisse Reports Pre-Tax Loss

02.10.2022
Credit Suisse Reports Pre-Tax Loss

Credit Suisse reports pre-tax loss of CHF 522 mn in FY21, impacted by the Archegos matter, goodwill impairment and litigation provisions.

On an underlying basis*, the bank posts pre-tax income of CHF 6.6 bn

“2021 was a very challenging year for Credit Suisse. Our reported financial results were negatively impacted by the Archegos matter, the impairment of goodwill relating to the Donaldson, Lufkin & Jenrette (DLJ) acquisition in 2000 and litigation provisions, as we look to proactively resolve legacy issues.

For the full year, we delivered a resilient underlying* performance, with stable net revenues despite a significant reduction of risk weighted assets and leverage exposure – especially in our IB division – since the end of 1Q21. During the last three quarters of the year, we ran the bank with a constrained risk appetite across all divisions as we took decisive actions to strengthen our overall risk and controls foundation and continued our remediation efforts, including on the Supply Chain Finance Funds matter, where our priority is to return cash to investors.

Our clear focus remains on the disciplined execution of our new Group strategy as announced in November 2021: strengthening our core and simplifying our organization as we look to invest for growth in key strategic business areas. We intend to continue to operate Credit Suisse Group with a stronger capital base and a CET1 ratio of at least 14%. Over the coming quarters, we expect to implement our strategy progressively. We have set clear financial goals for all our divisions and are now focused on delivering on our strategic objectives. I am confident that we are well-positioned to build a stronger and customer-centric bank that puts risk management at the very core of its DNA in order to deliver sustainable growth and value for investors, clients and colleagues.” Thomas Gottstein, Chief Executive Officer of Credit Suisse Group AG

Highlights for the fourth quarter of 2021

Net revenues were down 12% year on year, impacted by a reduced risk appetite across the Group in 2021, a negative impact on our franchise momentum and a return to a more normal trading environment after the exceptional conditions that prevailed for most of 2020 and 2021. This was most evident in the Investment Bank, largely due to our exit3 of Prime Services and the strong comparable performance in 4Q20, but our Wealth Management-related businesses also saw a reduction in transaction-based revenues. The pre-tax loss of CHF 1.6 bn compared to pre-tax loss of CHF 88 mn in 4Q20, included a goodwill impairment of CHF 1.6 bn relating to DLJ and major litigation provisions of CHF 436 mn, partly offset by real estate gains of CHF 224 mn.

– Reported pre-tax loss of CHF 1.6 bn for 4Q21, compared to a reported pre-tax loss of CHF 88 mn in 4Q20, predominantly driven by the previously announced goodwill impairment of CHF 1.6 bn taken in the quarter mainly relating to the acquisition of DLJ that was completed in 2000. We took major litigation provisions of CHF 436 mn in 4Q21, part of our progress towards addressing legacy issues

– On an adjusted basis, excluding significant items and Archegos*, 4Q21 pre-tax income of CHF 328 mn, down 62% year on year

– On an adjusted basis, excluding significant items and Archegos*, net revenues were down 18% year on year, impacted by the cumulative effect of our reduced risk appetite during the year, more normal trading conditions and client deleveraging

– NNA of CHF 1.6 bn compared to CHF 8.4 bn in 4Q20 across the Group, driven by NNA in AM of CHF 4.7 bn and in IWM of CHF 2.7 bn partly offset by net asset outflows in APAC of USD 3.2 bn (CHF 2.9 bn), which includes client deleveraging and de-risking measures we have taken, and in SUB of CHF 1.7 bn

– Strong capital base, with CET1 ratio at 14.4% as of the end of 4Q21, stable compared to the end of 3Q21 and improved Tier 1 leverage ratio at 6.2% as well as CET1 leverage ratio at 4.4%; capital and leverage ratios benefitting from reductions of RWA and leverage exposure

– Continued progress on remediation work on the Supply Chain Finance Funds (SCFF) matter. Returning cash to investors remains a priority; total cash paid out and current cash and cash equivalents of approximately USD 7.2 bn as of December 31, 2021

Highlights for the full year 2021

Stable net revenues with increased net revenues in the Wealth Management-related businesses, partially offset by a net revenue decrease in the Investment Bank, due to the loss related to Archegos and the cumulative impact of our reduced risk appetite in 2021 as well as our exit4 of Prime Services. We had a pre-tax loss of CHF 522 mn compared to pre-tax income of CHF 3.5 bn in FY20 due to the impact of the Archegos matter, the cumulative impact of our more conservative risk approach in 2021 and a goodwill impairment of CHF 1.6 bn, taken in 4Q21; additionally, the bank took major litigation provisions of CHF 1.1 bn in FY21.

– Net loss attributable to shareholders of CHF 1.6 bn, compared to net income attributable to shareholders of CHF 2.7 bn in FY20

– Reported pre-tax loss of CHF 522 mn, down significantly year on year, compared to pre-tax income of CHF 3.5 bn in FY20; FY21 included gains made on our equity investment in Allfunds Group of CHF 602 mn as well as gains on real estate sales of CHF 232 mn. Results in FY21 were affected by the impact of CHF 4.8 bn relating to Archegos, CHF 1.6 bn in the form of a goodwill impairment, CHF 1.1 bn relating to major litigation provisions, a CHF 113 mn impairment related to the valuation of our non-controlling interest in York Capital Management and CHF 103 mn of restructuring costs

– On an adjusted basis, excluding significant items and Archegos*, FY21 pre-tax income of CHF 6.6 bn, up 51% year on year

– On an adjusted basis, excluding significant items and Archegos*, net revenues of CHF 22.5 bn, up 2% year on year, driven by higher net revenues across AM, IB and SUB, partly offset by lower net revenues in IWM

– Adjusted operating expenses, excluding significant items and Archegos*, of CHF 16.1 bn, down 4%, reflecting underlying cost discipline and resulting from lower variable compensation costs, partially offset by increased professional services fees and investments in strategic initiatives, including hiring of relationship managers in APAC and hiring in risk and controls. Reported operating expenses of CHF 19.0 bn, up 7% year on year, mainly driven by the goodwill impairment taken in 4Q21 in IB and APAC, partially offset by decreased compensation and benefits

– Group AuM of over CHF 1.6 trn as of December 31, 2021, up approximately 7% year on year; NNA of CHF 30.9 bn with NNA in AM, IWM and SUB offsetting net asset outflows in APAC

– Wealth Management AuM of CHF 827 bn, up from CHF 795.3 bn as of December 31, 2020, with NNA of CHF 11.3 bn, supporting recurring commissions and fees’ growth of 9% year on year

Outlook

Compared to the exceptional levels of 1Q21, we have seen a reversion to lower, pre-pandemic levels of business activity, particularly given the monetary tightening that central banks have initiated. We also expect our Equities revenues to be impacted by the exit from Prime Services. However, after a weak start to the year, we are seeing encouraging signs of improving franchise momentum, including positive net new asset inflows year-to-date in our Wealth Management business.

As previously highlighted at our Investor Day on November 4, 2021, the year 2022 will be a transition year for Credit Suisse as the benefits of our strategic capital reallocation towards core businesses and generating structural costs savings to invest for growth should largely materialize from 2023 onwards. In this context, the results for 2022 are expected to be adversely affected by restructuring costs and higher compensation costs compared to last year. Our reported results are expected to also reflect volatility in the share price of our 8.6% holding in Allfunds Group (the value of which has declined by CHF 204 mn so far in 2022 5). During 2022, we intend to meet our goal of releasing a cumulative USD 3 bn of allocated capital from our Investment Bank for reinvestment into Wealth Management and other core businesses.

Full release can be read here.

Source: Credit Suisse

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