Credit Suisse raises 4 billion Swiss francs and cuts 9,000 jobs – 27.10.2022 at 11:50 am

(AOF) – Credit Suisse unveiled a heavy loss in the third quarter and unveiled its new strategy which will result in a 4 billion Swiss franc capital increase and the elimination of more than 17% of its workforce. The troubled Swiss bank suffered a net loss, group share, of 4.03 billion Swiss francs between July and September, compared to a profit of 434 million Swiss francs in the third quarter of 2021.

This year it recorded a depreciation of 3.7 billion Swiss francs in its deferred tax assets due to the revision of its strategy. Adjusted, Credit Suisse suffered a pre-tax loss of 92 million Swiss francs.

Revenues fell 30% to 3.8 billion Swiss francs, penalized by the investment bank whose net expressed banking income fell 56% to 1.1 billion Swiss francs.

Credit Suisse recorded an outflow of CHF 12.9 billion this quarter, compared with an inflow of CHF 5.6 billion a year earlier.

“Our new integrated model will focus on wealth management, Swiss Bank and wealth management, and we will fundamentally restructure investment banking, strengthen capital and accelerate our cost transformation,” said CEO Ulrich Körner.

At the end of September, the Swiss establishment recorded a hard capital ratio (CET1) of 12.6% against 13.5% in the second quarter. It also expressed its intention to raise around 4 billion Swiss francs to bring its CET1 ratio to 14%. By 2025, the bank is aiming for a ratio of over 13.5%.

The Board of Directors of Credit Suisse Group AG will propose to the Extraordinary General Meeting of November 23, 2022 to approve two separate capital increases.

A first capital increase through the issuance of new shares to a number of qualified investors, including the Saudi National Bank (SNB), and a second capital increase through an offer of rights to existing shareholders. The SNB has committed to invest up to 1.5 billion Swiss francs in Credit Suisse to achieve a stake of up to 9.9%.

The reorganization will also reduce the bank’s costs by 15%, or CHF 2.5 billion, to CHF 14.5 billion in 2025. To achieve this, 9,000 positions of the 52,000 currently in UBS’s competitor will be eliminated.

The bank estimates that the restructuring costs and depreciation of the properties associated with the transformation will amount to 2.9 billion francs in the period from the fourth quarter of 2022 to 2024.

Credit Suisse has also entered into an exclusive agreement to transfer a significant portion of its securitization (SPG) and other related financing activities to a group of investors led by Apollo Global Management.

“This decision is a key element of the bank’s strategy review, announced today, which aims to reduce risk-weighted assets and leverage exposure,” the bank said. Credit Suisse is reorienting its Investment Bank towards a more stable, less capital-intensive and advisory-focused model. Completion of the operation is expected in the first half of 2023.

Capital markets and investment banking advisory activities will be combined, after a transition period, under the CS First Boston brand.


The negative effects of rising interest rates

Rising interest rates usually cause bank income to increase through loans. In Europe, according to a survey conducted by S&P of 85 banking institutions, the sector expects an average increase of 18% in the interest margin. However, this new inflationary environment also has undesirable effects, notably an increase in refinancing costs. It is also accompanied by the fear of a new recession, which would then affect all the bank’s activities, from loans to asset management, whose income is correlated to market valuations. Reassuring element: euro area banks are strong enough to cope with a deteriorating environment.

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