Credit Suisse announced on Monday that it faced a significant challenge as it witnessed a massive outflow of assets from the bank in the first quarter. The bank reported that 61 billion Swiss francs, which is equivalent to US$68 billion, had left the institution during this period, and the outflows were continuing. This development underscores the difficulty that Credit Suisse’s rival, UBS Group AG, is facing in rescuing the institution.
Moreover, Credit Suisse reported a decline in customer deposits, which reduced by 67 billion francs in the first quarter of the year. The bank also noted that there had been significant non-renewals of maturing time deposits. Most of the asset outflows were from the bank’s wealth management division and occurred across all regions. This development poses a significant challenge for Credit Suisse as it tries to recover from the recent financial setbacks that have affected the bank.
“These outflows have moderated but have not yet reversed as of Apr 24, 2023,” Credit Suisse said.
UBS and Credit Suisse’s shares slightly increased in early trade despite alarming asset outflows. Some analysts were not as worried as others.
According to London-based analyst Thomas Hallett at KBW, Credit Suisse’s ability to generate revenue is so damaged that the merger with UBS may continue to impact UBS operating results without a comprehensive restructuring plan. Credit Suisse’s flagship wealth management division saw assets under management decrease to 502.5 billion francs in March, down from 707 billion francs last year.
Credit Suisse recently reported its financial results, likely for the last time, as its planned merger with UBS is expected to be completed soon. Client withdrawals accelerated after the bank was affected by market turmoil following the collapse of US lenders, which led to Swiss authorities organizing a rescue package. Under this package, UBS agreed to acquire Credit Suisse for 3 billion Swiss francs in stock and take up to 5 billion francs in losses. It also included 200 billion francs in state financial guarantees.
Credit Suisse reported having 108 billion Swiss francs in net borrowings and paying back 60 billion by the end of the first quarter. The bank also confirmed the mutual termination of the planned acquisition of Michael Klein’s investment banking business worth $175 million. UBS intends to reduce Credit Suisse’s investment bank after the merger.
The Future of Credit Suisse
The Swiss arm of the bank witnessed a significant reduction in assets as private clients withdrew 6.9 billion francs due to diminishing confidence, leading to uncertainty about the future of the Credit Suisse brand.
The “results show the challenged position CS’s franchise is in and the work ahead for UBS taking CS over”, analysts at RBC Capital Markets said in a note to clients.
At UBS’s annual general meeting, Lukas Gaehwiler, the bank’s Vice Chairman, announced that Credit Suisse would continue to operate under its own name in Switzerland for the near future. Amid growing pressure for Credit Suisse’s domestic business to be spun off, Gaehwiler stated that UBS has not yet determined what it will do, and “all options are on the table.”
There has been no announcement from UBS regarding how many jobs will be cut from Credit Suisse. However, after the acquisition, UBS executives believe that the deal will reduce costs by US$8 billion by 2027, with US$6 billion of the reductions coming from cutting the number of full-time employees across the firms’ operations.
UBS also confirmed that Christian Bluhm, who was previously set to depart, will continue as its chief risk officer for the “foreseeable future” to work on the takeover of Credit Suisse.