Credit Suisse alarm: Switzerland’s second largest bank has admitted it is grappling with a massive customer flight. Leak that mainly affected the wealth management division.
Frightened by the crisis besetting the Swiss giant, which has launched a historic restructuring process, Credit Suisse clients have withdrawn up to 84 billion Swiss francs, or the equivalent of $88.3 billion.
The leak manifested itself in the first weeks of this quarter, in the period between 30 September and 11 November:
in total, the outflows amounted to approximately 6% of Credit Suisse’s $1.47 trillion in assets.
Credit Suisse, Clients: We don’t want to look stupid
The stampede hit above all the wealth-managament division, i.e. the core business of the group, that of managing the large estates of wealthy clients, who withdrew the equivalent of a whopping $66.7 billion from the institution.
The news came like a bombshell in conjunction with the giant’s estimates on fourth quarter losses and with the decision of the shareholders to give the ok to a $4.2 billion capital increase.
The comment reported by is indicative Peter Lee in the Euromoney article:
“Very wealthy customers don’t want to look stupid keeping most of their money in a bank that is unable to manage its business to the point where it cannot make a profit”.
On the other hand, that loss estimated by Credit Suisse itself for the fourth quarter of 2022, amounting to 1.5 billion Swiss francs, would add to the loss of 1.9 billion francs suffered in the first nine months of the year. A decidedly monstrous budget loss, which led the bank’s wealthy customers to do some accounts. And finally decide to go elsewhere.
The result is that, with their departure, the wealth-management division has seen outflows since the beginning of the fourth quarter, equal to as much as 10% of the value of the assets it managed at the end of September, in the midst of a recovery process.
Credit Suisse confirmed yesterday the launch of a series of measures aimed at addressing the problems that persistently beset his investment bank, as part of a broader restructuring plan:
“QThese decisive measures should result in a radical restructuring of the Investment Bank, into accelerated cost transformation and strengthened and reallocated capital: each of these measures is making headway.”.
Credit Suisse and the Lehman Moment alarm triggered on the markets
But the bank’s problems have been talked about for several months now, so much so that, at the beginning of October, even the alarm of a Lehman Moment had gone off on the markets.
The Financial Times reported that the same Credit Suisse executive had reported contacts between top management and “customers and counterparties” to figure out what to do.
“We are also receiving messages of support from our major shareholders,” continued the manager, adding that the bank would like to avoid it recourse to a capital increase, in order not to depress share priceseven then at record lows.
And instead the capital increase will take place, to be precise, in two tranches.
The first, which received 92% shareholder approval, will see Credit Suisse privately place the new shares to new investors, which include the Saudi National Bank, intending to acquire up to 9.9% of the share capital by subscribing the shares.
However, some analysts fear that even such a significant capital increase (from $4.2 billion) may not be enough, unless Credit Suisse fully implements its restructuring plan, which also focuses on the sale of some assets and exit from some businesses.
The second phase of the capital increase will take place by instead placing the new shares with existing investors: this proposal passed with 98% of the shareholders’ votes.
Interviewed by Euromoney Simon Adamson, chief executive officer and head of the global financial research division at CreditSights, noted that the concern for Credit Suisse is that its flagship, i.e. the wealth management division, should be confirmed, in the plans of the bank, “the core business“, once restored. What will consequently happen to the core business of the giant, if rich customers continue to flee?
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Among other things, the flight of customers from Credit Suisse contrasts with what is happening at other titans of the world of high finance: during the third quarter, the wealth management division of Swiss rival UBS hwitnessed inflows exceeding 17 billion dollars, while Julius Baer made it known that he witnessed “a clear improvement” in new inflows since the end of June, with the wealthiest customers adding a net amount of 4.1 billion Swiss francs in the four months to October.
“The massive outflows that have hit Wealth Management, the core business of Credit Suisse together with that of the Swiss Bank, give rise to deep concerns, indeed exacerbate them, given that the phenomenon has not yet subsided”. commented Andreas Venditti, Banking Analyst at Bank Vontobel – Credit Suisse must restore confidence as quickly as possible. But that’s a lot easier said than done.”
The analysts of JPMorgan Chase and Jefferies are also pessimisticwho commented on the flight of clients from Credit Suisse’s wealth management stating that the outflows were much worse than had been feared.
The CS stock could not fail to react by collecting new heavy losses: Credit Suisse shares dropped by 5% yesterday bringing the YtD splash to almost -60%.
At this point hopefully in Saudi money: Saudi Arabia’s largest bank, Saudi National Bank, is set to become Credit Suisse’s largest shareholder by participating in the $4.2 billion capital increase.
Credit Suisse is preparing to make an encore of losses in 2022
Meanwhile, Credit Suisse is preparing to repeat the 2021 annus horribilis, when he paid with a loss of 2 billion Swiss francs above all the exposure to the disaster of the Archegos fund: last year the Swiss giant confirmed its position as the most exposed bank, among those that had financed the crazy bets of the fund (other names included Goldman Sachs, Nomura, Morgan Stanley).
The Archegos fund it collapsed as it was unable to satisfy the margin calls presented by the same banks which, towards the end of March 2021, had begun to bombard it with requests for greater guarantees, aware of how its bets were not going as hoped.
Credit Suisse had been forced to to cut 97% of its exposure to the fund.
Among other things, the bank had just returned from the reshuffle in its asset management division necessary to contain another damage suffered: that of the collapse of Greensil, the finance giant who counted the former British prime minister David Cameron among his advisors.
In early March 2021, Greensill filed for receivership, in the wake of ‘severe financial stress’ and the inability to repay a $140 million loan to Credit Suisse.
Greensil’s crash had been such as to drag the UK steel sector and some German savers into disaster, also putting the ECB on alert.
In short, in 2021, Credit Suisse paid dearly the double implosion of the Archegos fund and Greensil Capital, essentially getting overwhelmed by the dangers of gambling finance:
If the terrible year ended with one lost show, precisely, of 2 billion Swiss francs.
Things have definitely worsened with the invasion of Ukraine by Vladimir Putin’s Russia, which has plunged the whole world into a deep crisis, crippling in this specific case the attempts of the Swiss giant to revive its profitability.
The bank immediately took the spotlight this year with the previous profit warning launched on second quarter results.
Rumors also circulated towards the end of September that Credit Suisse was thinking to split the investment banking division into three.
For now, with regard to the restructuring plan, it has been learned from some sources that the Swiss giant has signed a deal with private equity giant Apollo Global Management targeting a significant portion of its investment bank’s securitized product group (GSP).