(Zurich) Credit Suisse announced further massive cash outflows and a sham quarterly profit on Monday, showing the “urgency” of restructuring that awaits UBS after the bank was forced to take over in turmoil under pressure Swiss authorities.
“UBS undoubtedly faces a major [and urgent] task in the deep restructuring of its former competitor,” reacted to reading the figures Andreas Venditti, analyst at Vontobel, in a market note.
During the first quarter, capital outflows reached 61.2 billion Swiss francs (62.5 billion euros), with the bank acknowledging in a press release “significant […] outflows during the second half of March” which have “slowed down but not yet reversed”.
In a stock commentary, analysts at Zürcher Kantonalbank noted outflows “lower than feared”.
As of 10:55 a.m. EST, Credit Suisse stock was up 1.54% at 0.8022 Swiss francs while UBS was up 1.25% at 18.28 Swiss francs, outperforming the SMI, the benchmark index of the Swiss Stock Exchange, up 0.05%.
In the fourth quarter, Credit Suisse had already suffered 110.5 billion francs in capital outflows.
“Over the past six months, the bank “suffered $140 billion in net withdrawals in wealth management alone,” one of its key divisions, Venditti noted.
These results, published on the eve of those of UBS, “reveal the poor state in which the firm finds itself”, he added.
Under pressure from the Swiss authorities, UBS agreed on March 19 to take over Credit Suisse for 3 billion Swiss francs to prevent it from going under.
To stay afloat, Credit Suisse had to call on massive liquidity from the Swiss central bank.
As of March 31, the sums borrowed amounted to 108 billion francs, even though the bank had already repaid 60 billion. It has since made additional repayments, of 10 billion as of April 24.
The bank’s situation has “deteriorated further,” said Jefferies analyst Flora Bocahut.
In the first quarter, the bank posted a sham net profit of 12.4 billion Swiss francs, the result of an accounting effect linked to the takeover by UBS.
To facilitate this takeover, the Swiss market surveillance authority, Finma, reduced to zero the value of the so-called AT1 (Additional Tier 1) risky bonds, put in place in the aftermath of the 2008 financial crisis to strengthen the bank capital.
This decision shocked the holders of this type of bond, which normally comes first in the order of repayment in the event of bankruptcy. Some have recently filed lawsuits against the regulator.
This net profit masks a pre-tax loss of 1.3 billion francs after adjustments, despite a gain of 700 million francs on the sale of part of its securitized products business to Apollo Global Management, detailed Credit. Swiss.
He still expects a “substantial” loss in the second quarter as well as for the whole of 2023, both at the level of the group and of its investment bank.
In the first quarter, the investment bank suffered a loss of $337 million in an already difficult environment for the sector but “exacerbated by the problems” affecting Credit Suisse, according to the press release.
The Swiss establishment has nevertheless reached an agreement to end a complex and controversial proposed transaction with the company of American investment banker Michael Klein, “due to the merger” planned with UBS.
In a separate statement, UBS announced on Monday that Christian Bluhm, its chief risk officer, will remain in his post longer than planned to support Damian Vogel who is to take on a newly created position as head of risk control for the company. integration of Credit Suisse.
Having “two senior leaders” in risk management will help “ensure we are well prepared,” said Sergio Ermotti, who took over as UBS CEO in early April.