As the result of poor bank performance and increased litigation expenses, Credit Suisse announced Wednesday that CEO Thomas Gottstein would be stepping down.
Despite experts’ projections for a 398.16 million Swiss franc loss, the troubled Swiss bank reported a net loss of 1.593 billion Swiss francs ($1.66 billion).
According to a statement, Gottstein called the results “disappointing” and that the bank’s performance was “significantly affected by a number of external factors, including geopolitical, macroeconomic and market headwinds.”
“The urgency for decisive action is clear and a comprehensive review to strengthen our pivot to the Wealth Management, Swiss Bank and Asset Management businesses, supported by a fundamental transformation of our Investment Bank, is underway,” he said.
“Today marks a leadership change for Credit Suisse. It has been an absolute privilege and honor to serve Credit Suisse over these past 23 years. It has been my passion since day one to deliver best-in-class service to our clients.”
Ulrich Koerner, the former CEO of the bank’s asset management division, will succeed Gottstein, who assumed over in early 2020 after predecessor Tidjane Thiam resigned following a spying scandal.
A hit to an investment bank
Credit Suisse acknowledged that the investment bank’s posture “was not geared towards benefiting from the volatile market conditions” and that its areas of strength, such as capital markets, were “significantly impacted” by lower capital markets issuance activity and decreased customer engagement.
The primary drivers of the group’s net revenue decline of 29% each year were a 43% drop in investment banking revenues, a 34% decline in wealth management revenues, and a 25% decline in asset management sales.
“In the Investment Bank, while we have a robust pipeline of transactions, these may prove difficult to execute in the current market environment,” Credit Suisse reported.
“Trading so far in 3Q22 has been marked by a continued weakness in client activity, exacerbating normal seasonal declines, and we would expect this division to report a further loss this quarter.”
An increase of 10% in operating expenses was attributed to an increase in litigation provisions of 434 million Swiss francs.
A long chain of scandals
The bank’s results report on Wednesday follows a net loss of 273 million Swiss francs in the first quarter, due to Russia-related losses and ongoing litigation costs emanating from the Archegos hedge fund affair.
For the first half of the year of 2021, Credit Suisse suffered an enormous setback. Their profits plummeted 78% as they failed to prevent Archegos from going bankrupt.
Early in June, Credit Suisse issued a warning that the quarter was likely to end in a loss, citing the deteriorating geopolitical scenario, aggressive monetary policy tightening by central banks, and the phasing down of stimulus programmes from the Covid-19 era.
The bank stated at the time that this was the cause of “continued heightened market volatility, weak customer flows and ongoing client deleveraging, notably in the APAC region.”
Credit Suisse promised to press ahead with its risk management and compliance overhaul, which was started in response to a string of scandals and aims to reform its risk, compliance, technology, and operations functions as well as the wealth management business, despite the difficult environment at an Investor Deep Dive event in late June.
The following are other highlights:
- Group revenue reached 3.645 billion Swiss francs, decreasing from 5.103 billion last year.
- The capital ratio for CET1, a measure of bank solvency, was 13.5%, 13.7% of which was in the same timeframe last year.
As legacy problems continue to hurt the bank’s balance sheet, a court action in Bermuda involving its regional life insurance subsidiary might cost it up to $600 million.