Credit Suisse shares plunged greater than 14% on Thursday after the Swiss bank posted a quarterly loss that was significantly worse than analyst estimates, and announced a large strategic overhaul.
The embattled lender posted a third-quarter net lack of 4.034 billion Swiss francs ($4.09 billion), in comparison with analyst expectations for a lack of 567.93 million Swiss francs. The figure was also well below the 434 million Swiss franc profit posted for a similar quarter last 12 months.
The bank noted that the loss reflected a 3.655 billion Swiss franc impairment regarding the “reassessment of deferred tax assets because of this of the excellent strategic review.”
Under pressure from investors, the bank revealed a significant overhaul of its business in a bid to deal with underperformance in its investment bank and following a raft of litigation costs which have hammered earnings. Recent CEO Ulrich Koerner told CNBC on Thursday it represented the start of a “transformation right into a latest Credit Suisse.”
In its widely anticipated strategic shift, the bank vowed to “radically restructure” its investment bank to significantly cut its exposure to risk-weighted assets, that are used to find out a bank’s capital requirements. It also goals to chop its cost base by 15%, or 2.5 billion Swiss francs, by 2025.
The bank expects to incur restructuring charges of two.9 billion Swiss francs by the tip 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 franc in capital through the issuance of latest shares and a rights offering, and create a capital release unit to wind down lower-return, non-strategic businesses.
The aim is to cut back risk-weighted assets and leverage exposure by 40% each over the course of the restructure, while the bank also got down to allocate “almost 80% of capital to Wealth Management, Swiss Bank, Asset Management and Markets by 2025.”
Chatting with CNBC, Koerner said the bank might be “way more stable, might be sustainably profitable, much simpler in the way it is ready up, and for us, probably the most vital things was how did we come to that solution? We began actually with the client needs and we designed every part across the client needs and ended up with what we’re proposing today.”
Koerner took the helm in July following the resignation of predecessor Thomas Gottstein, after the bank booked a second-quarter net lack of 1.593 billion Swiss francs, far below consensus expectations amongst analysts. He said Thursday’s strategic overhaul represented a “very decisive motion program.”
“Primary, a radical restructure of the investment bank; number two, a major reduction of costs; and number three, an additional strengthening of our capital base, and I feel with that, now we have all of the vital ingredients … to go where we wish to go,” he added.
Credit Suisse has been plagued over the past 12 months by sluggish investment banking revenues, losses from the withdrawal of its business in Russia and litigation costs regarding a number of legacy compliance and risk management failures, most notably the Archegos hedge fund scandal.
Listed below are another financial highlights for the third quarter:
- Group revenue hit 3.804 billion Swiss francs, down from 5.437 billion Swiss francs for a similar period last 12 months.
- CET1 capital ratio, a measure of bank solvency, was 12.6%, in comparison with 14.4% at the identical time last 12 months and 13.5% within the previous quarter.
- Return on tangible equity was -38.3%, down from -15% within the second quarter and 4.5% within the third quarter of 2021.
