Credit Suisse warns on pay, costs after $2.2 billion loss

Bloomberg

Credit Suisse Group AG warned that higher costs for pay and its restructuring will weigh on results in 2022, adding to the bank’s woes after it posted the biggest quarterly loss in about four years.
The Zurich-based bank had a net loss of about 2 billion francs ($2.16 billion) in the three months through December, primarily driven by a huge impairment charge at the investment bank, at the heart of the biggest blow-up last year. Earnings also missed estimates at the key wealth management unit.
Credit Suisse is struggling to move past a turbulent year in which it was rocked by the Archegos Capital Management and Greensill scandals and saw its new chairman ousted after only a few months in charge because of quarantine breaches. Now, the Swiss lender needs to reassure clients and its own staff that it can chart a credible path forward and return to profitability after many of its Wall Street peers produced bumper profits.
The bank in November said that it would reduce risk after the Archegos losses and shift resources away from the investment bank to the wealth management businesses and hire hundreds of new wealth managers. Then-Chairman Antonio Horta-Osorio was the architect of that revamp, before his surprise departure earlier this year for breaking covid rules and replacement by Axel Lehmann.
The bank had already flagged that it would post a loss for the fourth quarter, after taking a 1.6-billion-franc impairment charge as part of restructuring in the investment bank and exiting the prime business serving hedge funds. It also signalled additional legal provisions of 436 million francs. The charges are partially offset by gains on real estate sales of 224 million francs.
The bank reiterated that trading conditions are normalising after a frenetic pace of deals and financing during the pandemic and that it expects equities revenue to be impacted by the exit from its prime services business. Credit Suisse said that after a slow start to the year, it’s seeing “encouraging signs” across its business, including net new asset inflows in wealth management.
Still, Chief Executive Officer Thomas Gottstein and Lehmann will need to revive confidence among employees and investors after an exodus of talent, which risks extending as recent bonus cuts angered managers. In a further appeal for investor patience, the bank said this year would be one of “transition” and that the business would be “adversely affected” by restructuring and compensation costs.
Many of the benefits of the revamp will only come in 2023.
At the investment bank, fixed income trading revenue decreased by 38%, a steeper decline than the average of 15% at the biggest Wall Street firms. Equities trading revenue declined 26%, partly stemming from the exit of prime finance. Capital markets revenues were down 48% from the prior year as SPAC-related activity and a lower risk appetite in the leveraged finance business.
The bank’s business of advising on mergers and acquisitions provided a boost with a 51% increase in revenues for the quarter. In a hot market for banking talent, the firm is pledging to ensure pay stays competitive as it seeks to attract and retain talent.
Credit Suisse also warned it has seen a “significant” slowdown in transaction activity at the international wealth management and Asia Pacific divisions, including deleveraging by clients in Asia amid market gyrations.