Credit Suisse, one of the largest banks in Switzerland, has reported a massive outflow of assets worth 61 billion Swiss francs ($68 billion) in the first quarter of 2023. The bank has also noted that the outflows continued, which poses a significant challenge for its rival, UBS Group, which is trying to rescue the troubled bank. The report has also revealed that customer deposits declined by 67 billion francs in the first quarter, and many matured time deposits have not been renewed.
Credit Suisse has said that most of the money leaving the bank was from its wealth management division, which is prevalent in all regions. The net asset outflow followed 110.5 billion francs pulled by clients from the bank in the fourth quarter of 2022. The bank’s ability to generate revenue has been significantly damaged, and it has been suggested that the deal with UBS could remain a drag on the latter’s operating results unless a more profound restructuring plan is announced.
Credit Suisse has noted that the outflows have moderated, but they have not yet reversed as of April 24, 2023. The report has also revealed that the assets managed by the flagship wealth management division of the bank have plunged 29% to 502.5 billion francs at the end of March from the same period last year.
The outflow of assets has occurred due to the market turmoil unleashed by the collapse of U.S. lenders Silicon Valley Bank and Signature Bank. Clients of Credit Suisse have started pulling their money out of the bank after it was ensnared in this turmoil. Swiss authorities rushed to rescue Credit Suisse and engineered a deal with UBS, which agreed to take over Credit Suisse for 3 billion francs in stock and assume up to 5 billion francs in losses. The deal also includes 200 billion francs in state financial guarantees.
Credit Suisse has reported a pre-tax profit of 12.8 billion francs, largely due to the controversial writedown to zero of AT1 bonds and a gain from the sale of a big portion of its Securitized Products Group to Apollo Global Management. When adjusted for these factors, it had a loss of 1.3 billion francs for the quarter. The wealth management and investment banking units of the bank will continue to be loss-making in the second quarter, and the group is also expected to post a loss this year.
UBS, which has flagged that it expects the deal to bring $8 billion in cost reductions by 2027, reports first-quarter earnings on Tuesday. Credit Suisse’s filing on Monday has revealed that Christian Bluhm, whose departure had been previously announced, will continue as its chief risk officer for the “foreseeable future” to work on the takeover.
The bank’s operating expenses increased 30% from the previous quarter, which the bank said was largely due to a goodwill impairment charge and increases in compensation and benefits. Private clients pulled 6.9 billion francs from the bank’s Swiss arm amid questions over the future of the Credit Suisse unit in Switzerland. Credit Suisse’s planned $175 million acquisition of Michael Klein’s investment banking business was called off by mutual agreement. The bank had just over 48,000 full-time employees at the end of the first quarter, a 5% decline from end-December.
The magnitude of the outflows has alarmed some analysts, while others have noted that they were not as bad as feared. However, much of Switzerland’s reputation as a trusted global financial center, particularly for the ultra-wealthy, will rest on whether the two globally important systemic banks, Credit Suisse and UBS, can be successfully integrated.