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OPINION

Depositors pull their money from Credit Suisse

Credit Suisse directors may sigh with relief that shareholders have approved the latest capital raise, but they are already guiding to yet another big loss.

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Those Credit Suisse profit warnings seem to come earlier every year. Traditionally, the bank waits for a quarter to end before guiding investors to the coming disappointment ahead of the full results announcement. Today, the bank pre-announced a likely SFr1.5 billion ($1.58 billion) loss for the fourth quarter of 2022 just over halfway through it.

Its timing was dictated by the SFr4 billion dual-tranche capital raise through a private placement and rights issue meant to pay for its latest restructuring. Shareholders duly approved this at today’s extraordinary general meeting.

Even though they would have already decided that they had no choice but to nod through the share sale, at least they had the chance to eye the latest grim news before doing so.

Very wealthy people don’t want to look like fools for keeping most of their money at a bank that can’t manage its own financial affairs well enough to turn a profit

That projected SFr1.5 billion loss for this quarter comes on top of a SFr1.9 billion loss in the first nine months.

As it cuts back ever more heavily in investment banking, where it has agreed to sell a large portion of its profitable securitized products group to Apollo, that division will continue to underperform and to print its results in brackets.

The worry for investors now is the damage to the Swiss bank’s signature wealth management business.

Material drop

Very wealthy people don’t want to look like fools for keeping most of their money at a bank that can’t manage its own financial affairs well enough to turn a profit. Credit Suisse reports outflows so far this quarter from its wealth management unit of 10% of what it had under management at the end of September.

Simon Adamson, chief executive and head of global financial research at CreditSights, puts this outflow at SFr64 billion, “which is a very material drop in a single quarter”.

Other analysts draw comparison with the exodus from UBS in the depths of the great financial crisis.

Adamson points out that the concern for Credit Suisse “is that wealth management is supposed to be the core business of the restructured bank”.

Lower deposits and assets under management mean that the business is losing net interest income, fees and commissions revenue faster than it can cut costs, and that it, too, will report a loss for the fourth quarter.

And evaporating customer confidence is evident in other businesses. The entire group has suffered outflows of 6% of all assets under management from the end of the third quarter, implying SFr84 billion of withdrawals so far in the first half of this quarter.

At least the pace of that run has slowed somewhat since the first two weeks in October, when Credit Suisse’s credit default swap spread spiked. But it hasn’t reversed, and the bank needs it to. The question now becomes whether it can attract inflows while selling businesses, cutting headcount and losing share in down markets.

Liquidity buffers

No doubt absent from the next results presentation will be the usual boast of having one of the highest liquidity coverage ratios (LCR) of any global systemically important bank. That stood at 192% for the group at the end of the third quarter.

The bank had already announced on October 27, when it unveiled its latest restructuring, that it has had to dip into its liquidity buffers.

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Axel Lehmann, Credit Suisse

The devil is always in the undisclosed details, but Credit Suisse now says that while the group’s average daily LCR for the fourth quarter up to November 18 was down to 140%, it has seen spot rates broadly stabilizing between about 120% to around 130% since the October 27, 2022, results announcement. And that, according to Adamson “is looking a bit thin”.

Perhaps even more worrying is the group’s structural complexity, with multiple ring-fenced operating units, some with their own boards of directors. Credit Suisse says that while it has maintained its LCR and net stable funding ratio at the group level “the bank has fallen below certain legal entity-level regulatory requirements”.

Axel Lehmann, chairman of Credit Suisse, thanked shareholders for today's approvals of the capital raise, “which reinforce our collective will to deliver and to execute our strategic plan.” That is meant eventually to deliver profitable growth. But those shareholders now know that a chunk of the money they hand to Credit Suisse will be swallowed up in more operating losses for the fourth quarter as well as a first down-payment of SFr250 million on the bill for becoming a smaller bank.

Restructurings are always expensive, especially when undertaken from a position of weakness.