Credit Suisse warns of another loss as capital recedes

REUTERS
REUTERS

Summary

  • Markets disrupted by the war in Ukraine and rising inflation gummed up activity in the Swiss lender’s investment bank

Credit Suisse Group AG warned its capital position is eroding and that it expects another quarterly loss from weak market conditions and lower earnings in its investment bank.

The Swiss bank said investment banking has been hit by companies opting not to sell new stock or bonds in volatile conditions, wiping out a main source of revenue. It said the poor performance will push the division and the bank overall to a loss in the second quarter, for its third consecutive quarterly loss.

In an admission of the tough times it faces, the bank lowered its target capital ratio to 13.5% in the near term, from 14%. The ratio slipped to 13.8% at March 31 from 14.4% at the end of December. Executives previously said the bank doesn’t need to raise fresh capital, and that the ratio would rise back over 14% later this year.

Without generating profit, the bank will struggle to generate fresh capital, which acts as a buffer, protecting the bank when loans turn sour. Investors worry it will need to raise more capital despite a depressed stock price and valuation. That would be a painful move for those betting on the bank’s turnaround.

It said it would speed up cost cutting plans and give more details at an investor day on June 28.

Credit Suisse stock slid 7% and was set to trade near a record closing low, according to FactSet, continuing a streak as one of Europe’s worst performing banks. The warning of a loss this quarter is an early sign that the disruption in financial markets since Russia invaded Ukraine is hitting activity among big international banks.

Credit Suisse is a leading player when it comes to helping companies raise funds from stock and bond markets. The market for initial public offerings and blank-check companies, or SPACs, has all but dried up during the selloff in stock markets. Debt financing has also slowed as companies navigate rising interest rates and punishing levels of inflation.

The lender, which combines a global private bank catering to the rich with a Wall Street investment presence, has been in on-and-off restructuring mode since the financial crisis a decade ago but has remained encumbered by litigation and regulatory probes stemming from that period.

Its turnaround was hammered by a more than $5 billion cash loss last year from exiting stock positions of family office Archegos Capital Management. In addition to the financial loss, Switzerland’s financial regulator imposed additional capital requirements and heightened its supervision of the bank

Credit Suisse lost the most among Wall Street lenders when the family office’s large stock positions imploded in March 2021, causing around $10 billion in losses across banks.

Archegos was the most prominent of a string of disasters to befall what has become Europe’s most scandal prone bank. It has also suffered the collapse of financing partner Greensill Capital and saw the departure of its chairman in January for violating Covid-19 rules. In March, a Bermuda court imposed a $500 million judgment against the bank in a case brought by a disgruntled billionaire client.

The bank’s chairman, Axel Lehmann, told shareholders in April that Credit Suisse must do better in anticipating risks, and reconnect with its Swiss heritage and the values of its entrepreneur founder Alfred Escher from 166 years ago.

That month, it said it would replace several top executives including its chief financial officer, in a continuing reshuffle.

This story has been published from a wire agency feed without modifications to the text

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