Credit Suisse was once the shining star of the Swiss banking industry. Its decline from grace is not slowing down.
, the bank that was in serious financial trouble, had to deal with three new concerns Tuesday.
First, the Swiss financial regulator stated that it was closely monitoring Credit Suisse and other Swiss lenders after the collapse of Silicon Valley Bank (SVB).
Second, the bank had to admit that it had “material flaws” in its controls and reporting. Finally, the bank revealed that a long-running wave of customer outflows is still ongoing.
Investors are becoming more anxious. Credit Suisse Zurich-listed shares fell by more than 10% this week in the wake of the market turmoil that was triggered by the death of SVB.
The share price has fallen by a fifth from the start of the year, and by 68pc in the past 12 months.
Ulrich Korner is the new chief executive of the bank. He has pleaded for patience and is now embarking on a major overhaul plan.
Korner stated that while no one is happy with the share price growth, he and his team manage what they can, and this is the execution part of their plan to Bloomberg TV.
In a sign his growing frustration with stakeholders, he said: “We stated it’s three years transformation, and you can not come after two months and say, ‘Why isn’t everything done?’
Credit Suisse has had a long list of problems in the past two years, including exposure to hedge fund meltdowns; $475m Mozambique scandal; swift departure of its gaffe-prone Chairman; money laundering conviction; surging withdraws and a PS6.5bn annual losses.
Korner has to deal with the growing fear of European banking contagion, in addition to the Credit Suisse problems.
After the collapse of two US lenders, Monday’s record-breaking bets that Credit Suisse would default hit Credit Suisse on Monday.
Credit Suisse’s well-documented flaws increased the likelihood of it defaulting on its 167-year-old loan. Money was poured into credit default Swaps, an investment designed to protect investors from distress and trigger a repayment if certain criteria are met.
According to pricing source CMAQ, the five-year credit default swaps for Credit Suisse climbed as high as 36 basis points Monday to a record 453 basis point peak.
FINMA, the Swiss financial regulator, stated that it was monitoring the situation following Monday’s sharp fall in share prices at Credit Suisse and UBS.
Credit Suisse shares fell 2pc on Tuesday while UBS shares traded 3pc higher.
FINMA stated that it was “closely watching the situation” and added: “FINMA is evaluating direct and indirect exposure of banks and insurance companies it oversees to the institutions.”
“The goal is to detect cluster risks and potential contagion early.”
Despite the turmoil, Korner tried to stay positive. He said that he was encouraged by the bank’s quicker-than-expected progress in addressing a wave of job losses and noted that there are signs of customer confidence returning.
“We had inflows yesterday which I consider a positive sign.” Yesterday we even had materially good inflows.”
Although Korner hopes this will signal a trend change, one day of inflows won’t be enough to stop investor pressure.
The bank’s annual report revealed that outflows from customers had stabilized to lower levels, but were not yet reversed.
Credit Suisse has been facing market worries for some time. This is due to the fact that the bank was unable to deliver a restructuring plan to clients who have pulled funds from it. The figure ballooned to $120bn during the last quarter of last year.
Andrew Coombs, an analyst with Citigroup, downgraded his rating on Citigroup last month. He stated: “While management provided some assurance on flows, capital and liquidity… they also raised grave questions about the future trajectory profit with the CEO pointing out another’substantial loss’ in 2023.”
Korner announced a three-year turnaround plan in October. It included the elimination of 9,000 jobs and shifting its focus to investment banking. The bank will also invest 1.5 billion Swiss Francs (PS1.3bn), from Saudi Arabia’s largest bank.
Credit Suisse’s investment bank, which will be part of the overhaul, will also be spun-off.
Two major hits were suffered by the bank in 2021 after the collapse of Greensill Capital, a supply chain finance group, and Archegos family office Archegos. This triggered a prolonged period for crisis.
These two scandals resulted in $10bn (PS8bn), of clients’ assets being frozen, and a $5.5bn trading losses.
Credit Suisse was made to postpone its annual report last week after an 11-hour query from US regulators regarding its previous filings.
The bank revealed Tuesday that it had discovered “material weaknesses” in its controls and reporting procedures over the past two years, in the latest blow to scandal-hit lender.
It stated that the “Management failed to design and maintain an efficient risk assessment process in order to identify and analyse risk of material misstatements within its financial statements.”
Korner stated that he was confronting the issue “very forcefully” and added that the issue had no effect on the company’s financial results for 2022 and previous years.
Korner has a difficult job. He claims that all he requires is time. “We do the right thing, but it takes time to get there.” We want to recover all the things we have lost. Once we’re there, we move on to grow the business.”
Investors are becoming more restless and want to see concrete results, rather than just words.