Three new horror messages from Credit Suisse

The bank Credit Suisse recently announced its new strategy and parts of its quarterly report. Now it has published the full report and new problems are coming to light.

The reeling bank Credit Suisse (CS) recently announced its capital increase and strategy adjustment. At the same time it announced a loss of around four billion Swiss francs for the third quarter and a mega loss of 5.9 billion Swiss francs for the first three quarters combined.

Now the financial institution has announced its full quarterly report on Thursday night. The work comprises 154 pages and three bad pieces of news stand out from it, as muula.ch noted.

Supervisory law violated

First, it is about the outflows of customer funds – and there it runs cold down the spines of its readers. During the first two weeks in October, significantly higher amounts of cash flowed out due to the negative press as well as due to false reports on social media, and expiring savings deposits were not renewed.

These developments are now no longer present in any magnitude, according to CS. However, the outflow could not yet be simply swept away, it continued.

And then it says that with these outflows, the liquidity buffers at the level of some legal entities have fallen below the regulatory required levels (“we have fallen below certain legal entity-level regulatory requirements”). At the Group level, however, the requirements of the supervisory authorities had held overall.

Further write-downs

The second, hitherto practically-unknown point, is the problem of goodwill at CS. This must be regularly tested for impairment. And in this context CS states that the calculated value for the Asset Management division only exceeds the reported value by about 12 percent and that value adjustments could therefore be imminent.

The position reacts more sensitively to an impairment because higher equity costs had to be taken into account in the third quarter, it stated.

Overall, the net book value of goodwill on this position in Asset Management is 1.169 billion Swiss francs. CS Group recognized about 3 billion Swiss francs in net book value of goodwill as of the third quarter.

Therefore, if CS determines that the balance sheet value of goodwill at Asset Management is no longer recoverable, it would have to make an adjustment.

Loss-making Allfunds

And then, thirdly, we are back to losses. After the horror loss figures for the reporting quarter, there will be losses again in the fourth quarter. CS had already stated this. However, CS now made in the report already additional information.

Thus, in the fourth quarter, a loss of 75 million Swiss francs will result from the sale of the Allfunds investment.

CS had announced with much fanfare that it would sell its 8.6 percent stake in Allfunds. Now, after the deal has been completed, it is clear that it was a losing proposition for the big bank.

Why sell it if there is such a large disposal loss in the process? All that remains is a shrug of the shoulders. So the loss-making sale must have been the lesser evil.

Even more minus signs

In addition, according to the report, 250 million Swiss francs will be charged for software and real estate write-offs as well as restructuring costs. In addition, there would be the negative effects of the business that CS will not continue to operate.

And normal business activity is also putting pressure on profits in light of the adversity in the capital markets, it said.

Fine print counts

Non-compliance with regulatory requirements, the threat of a goodwill write-off in asset management and a 75 million Swiss francs loss on the sale of the Allfunds stake – which only represents part of the shortfall in the upcoming fourth quarter – brings bad news upon bad news.

However, these are virtually only in the fine print.

03.11.2022/kut./ena.