capital increase is coming
Clients pull billions from Credit Suisse
11/23/2022 3:43 p.m
The battered Credit Suisse is heading for the fifth quarterly loss in a row. The shareholders agree to a capital increase to finance the planned conversion and to strengthen the capital base.
Credit Suisse shareholders have cleared the way for the planned expansion of the balance sheet of the crisis-ridden major Swiss bank. However, customers’ trust in the institute remains tarnished: despite the radical corporate restructuring initiated at the end of October, they continue to withdraw billions from their accounts. At the group level, net outflows measured in terms of assets under management at the end of the third quarter were around six percent, as Credit Suisse announced. Vontobel analyst Andreas Venditti put the net outflow at CHF 84 billion.
The management around bank boss Ulrich Körner also specified the loss warning for the fourth quarter issued in October and predicted a deficit of around CHF 1.5 billion before taxes for the period from October to December. That would be the fifth quarterly loss in a row. In the wake of falling deposits and assets under management, income from interest, commissions and fees is falling. In addition, there are negative earnings effects due to the exit from non-core businesses.
Subdued customer activity
In the current quarter, reports in the media unsettled customers of the bank to such an extent that they transferred part of their funds to other institutes. Customer flight has caused the Liquidity Ratio (LCR), which measures the stock of high-quality liquid assets in relation to cash outflows, to collapse. In doing so, Credit Suisse fell short of individual minimum requirements set by the regulators and had to fall back on cash reserves.
In business with wealthy international private customers, outflows have now fallen significantly compared to the high values of the first two weeks of October, and customer balances have stabilized in the Swiss unit. Credit Suisse expects continued subdued client activity in the coming months.
Qatar and Saudi Arabia join
The news was not well received on the stock exchange. The share price fell by more than six percent at its peak. “The massive net outflows in wealth management, CS’s core business alongside the Swiss bank, are very worrying – all the more so since they have not yet reversed,” said Vontobel analyst Venditti.
At an extraordinary general meeting, the vast majority of shareholders approved two transactions with which the bank intends to raise a total of around four billion francs. Credit Suisse, which made a net loss of four billion francs in the third quarter, wants to use the money to dispel doubts about its stability and finance a far-reaching conversion to a lower-risk business.
In the course of the capital increase, investors from the Middle East are expanding their influence on the Zurich institute. The Saudi National Bank, which is partly owned by the Kingdom, joins the existing owners, the sovereign wealth fund of Qatar and the Saudi Olayan family.
Despite the capital injection, Credit Suisse still has a rocky road ahead of it. With the reduction of 9,000 jobs and the exit from parts of the investment bank, the money house wants to find its way back on the road to success in the coming years. For 2025, the bank is then aiming for a return on equity of six percent, which is still modest compared to the industry.