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Q3 2022 earnings and overhaul

Switzerland’s second largest bank Credit Suisse is seen here next to a Swiss flag in the center of Geneva.

Fabrice Coffrini | AFP | Getty Images

Swiss credit on Thursday posted a quarterly loss that was significantly worse than analyst estimates as it announced a massive strategic overhaul.

The distressed lender posted a net loss of 4.034 billion Swiss francs ($4.09 billion) in the third quarter, compared with analysts̵[ads1]7; expectations for a loss of 567.93 million Swiss francs. The figure was also well below the profit of 434 million Swiss francs for the same quarter last year.

The bank noted that the loss reflected an impairment of 3.655 billion Swiss francs related to “the reassessment of deferred tax assets as a result of the comprehensive strategic review.”

Under pressure from investors, the bank unveiled a major overhaul of its business in a bid to address poor performance in its investment bank and after a raft of legal costs have hammered earnings.

In its widely anticipated strategic shift, Credit Suisse pledged to “radically restructure” its investment bank to significantly reduce exposure to risk-weighted assets, which are used to determine a bank’s capital requirements. It also aims to cut its cost base by 15%, or 2.5 billion Swiss francs, by 2025.

Credit Suisse expects to incur restructuring costs of 2.9 billion Swiss francs by the end of 2024.

The transformation plan will see Credit Suisse split off its investment bank into an independent business called CS First Boston, raise 4 billion Swiss francs in capital through the issuance of new shares and a rights issue, and create a capital release unit to divest lower-yielding, non-strategic businesses.

The aim is to reduce risk-weighted assets and leverage exposure by 40% each during the restructuring, while the bank also set out to allocate “almost 80% of capital to Wealth Management, Swiss Bank, Asset Management and Markets by 2025.”

“Our new integrated model, with our wealth management franchise, strong Swiss banking and asset management capabilities at its core, is designed to allow us to deliver a unique and compelling proposition for clients and peers, while targeting organic growth and capital generation for shareholders , ” new CEO Ulrich Koerner said in a statement.

“The new executive board is focused on restoring trust through the relentless and accountable delivery of our new strategy, where risk management remains at the heart of everything we do.”

Koerner took the helm in July after predecessor Thomas Gottstein stepped down after the bank posted a second-quarter net loss of 1.593 billion Swiss francs, well below consensus expectations among analysts.

Credit Suisse has been plagued in the past year by weak investment banking revenue, losses from the withdrawal of its Russian operations and legal costs related to a series of past compliance and risk management failures, most notably the Archegos hedge fund scandal.

Here are some other financial highlights for the third quarter:

  • The group’s turnover reached 3.804 billion Swiss francs, down from 5.437 billion Swiss francs for the same period last year.
  • The core capital ratio, a measure of banks’ solvency, was 12.6%, compared with 14.4% at the same time last year and 13.5% in the previous quarter.
  • Return on tangible equity was -38.3%, down from -15% in the second quarter and 4.5% in the third quarter of 2021.

This is a news in development and will be updated soon.

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