Credit Suisse warns of $1.6 billion in loss after clients withdraw money

Credit Suisse Group AG warned it would lose about $1.6 billion in the fourth quarter after customers withdrew their investments and deposits amid concerns about the bank’s financial health.

Switzerland no. The No. 2 bank by assets said outflows were about 6% of its total $1.47 trillion in assets, or about $88.3 billion, between Sept. 10 and Sept. 10. 30 and Nov. 11. Clients of its wealth management arm – its core business serving the world’s wealthy – have taken $66.7 billion out of the bank. Credit Suisse said in late October that the social media frenzy about his health was causing large outflows.

The rapid pace of withdrawals meant that the bank’s liquidity fell below some requirements locally, the bank said. It said it has always maintained the required group-wide liquidity and funding ratios. Banks must keep sufficient liquid assets on hand to meet expected cash outflows in a 30-day period, according to the rules of the post-financial crisis era.

CREDIT SUISSE CUTS 2,700 JOBS IN FOURTH QUARTER, EXPECTS MORE BY 2025

Tickers Safety Last Change Change %
CS CREDIT SUISSE GROUP AG 3.83 -0.25 -6.12%

Shares of Credit Suisse fell 5% on Wednesday. If sustained, the decline would take the price below the lowest closing level from September 10th. 29, according to FactSet. Shares are down nearly 60% this year.

The cost of insuring bank debt against default rose on Wednesday.

The warning comes at a precarious time for the bank, which began a major overhaul of its operations weeks ago. Credit Suisse received shareholder approval Wednesday on a plan to raise more than $4 billion in new shares. It is in the process of selling a large group within its investment bank to free up capital, as part of its recovery effort.

The new stock is sold to new and existing investors. The Saudi National Bank said it would take up to a 9.9% stake as a new shareholder. Some analysts fear that the new capital increase may not be enough if Credit Suisse’s renewal does not go as planned. The bank’s capital requirement depends on the sale and exit of certain assets and on the performance of its current business.

Gray clouds cover the sky over a Credit Suisse bank building in Zurich, Switzerland on Feb. 14, 2020. 21, 2022. (Ennio Leanza/Keystone via AP/AP Images)

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Chairman Axel Lehmann said shareholders showed their confidence in the bank by approving the share increase.

Reducing client assets means that Credit Suisse has less cash to manage and earns less commission. A broader slowdown in activity at its wealth management division and investment banking contributed to the warning of a pre-tax loss of about $1.6 billion for the quarter, it said.

In all, more than $100 billion has left the bank since June, according to Credit Suisse filings. He said client balances have stabilized at his Swiss bank and outflows have slowed at wealth management, but have not reversed.

Wealth management, the money management business of the wealthy, is Credit Suisse’s largest and most important business. The bank’s overhaul is intended to reduce its reliance on risky Wall Street operations and double down on the steady commission-collecting business of working with the world’s ultra-wealthy.

The large outflows indicate that some of those well-heeled clients have grown wary of Credit Suisse’s problems despite its more than 160-year history. The bank was hit hard when a client, family office Archegos Capital Management, defaulted in March 2021, resulting in a loss of more than $5 billion.

Credit Suisse office in New York

A woman walks past the Credit Suisse offices on March 29, 2021 in New York City. (Spencer Platt/Getty Images/Getty Images)

Uncertain markets have meant that clients are not transacting as much through asset managers. However, crosstown rival UBS Group AG reported about $35 billion in net new business generated for free by wealth and wealth management clients in the third quarter.

Concerns about the bank reached a fever pitch in October, when commentators on social media platforms Twitter and Reddit questioned the bank’s health.

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Credit Suisse warned last month that it would post a net loss in the fourth quarter, in part due to the costs of the audit. It has posted consecutive quarterly losses this year after it began restructuring its operations late last year. In the fourth quarter of last year, it lost about $1.7 billion.

The bank said it was still targeting a capital ratio of at least 13% between 2023 and 2025 during the restructuring.

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