Credit Suisse Update: Net Asset Outflow 6% of AUM & 10% Outflow of Wealth AUM, $1.6 Billion Losses for 2022 Q4
24th November 2022 | Hong Kong
Credit Suisse, which had recently announced a new strategic plan including focusing on asset & wealth management businesses, has provided an update of net asset outflow of 6% of AUM (Assets under Management) and 10% of outflow of Wealth Management AUM, with earnings forecast for Q4 2022 to report a loss of $1.6 billion (CHF 1.5 billion). Credit Suisse: “Credit Suisse began experiencing deposit and net asset outflows in the first two weeks of October 2022 at levels that substantially exceeded the rates incurred in the third quarter of 2022. At the Group level, as of November 11, 2022, net asset outflows were approximately 6% of assets under management at the end of the third quarter of 2022. In Wealth Management, these outflows have reduced substantially from the elevated levels of the first two weeks of October 2022 although have not yet reversed and were approximately 10% of assets under management at the end of the third quarter of 2022. In the Swiss Bank, these client balances have stabilized and were approximately 1% of assets under management at the end of the third quarter of 2022.” In October 2022, Credit Suisse Wealth Management Group reported AUM of CHF 635 billion in 2022 Q3 (2022 Q2: CHF 662 billion). See below for Credit Suisse new strategic plan.
“ Net Asset Outflow 6% of AUM & 10% Outflow of Wealth AUM, $1.6 Billion Losses for 2022 Q4 “
The bank today is informing the market on its updated outlook for the fourth quarter of 2022 and as part of its equity raise process: In its Outlook statement on October 27, 2022, the bank highlighted that the challenging economic and market environment has had an adverse impact on client activity across its divisions. In particular, the Investment Bank has been impacted by the substantial industry-wide slowdown in capital markets and reduced activity in the Sales & Trading businesses, exacerbating normal seasonal declines, and the Group’s relative underperformance. In addition, client activity remains subdued in the Wealth Management and Swiss Bank divisions, and the bank expects these market conditions to continue in the coming months.
The Group continues to execute on the decisive strategic actions detailed on October 27, 2022, to create a simpler, more focused and more stable bank – a new Credit Suisse.
Credit Suisse New Strategy: 80% on Wealth & Asset Management, Markets (Trading) & Switzerland, CS First Boston as Independent Investment Bank, Sells Securitized Products to Apollo & PIMCO, Raise CHF 4 Billion Capital & Job Cuts of 9,000
29th October 2022 – Credit Suisse has announced a new strategy after 2 years of ongoing crisis ($160 billion Archegos family office & $10 billion Greenhill fund collapse, multiple lawsuits etc), with the new Credit Suisse to focus 80% of capital (by 2025) on Wealth Management & Asset Management businesses, Markets (Trading) and Switzerland Businesses. Credit Suisse will also create CS First Boston as an independent Investment Bank, and sells Securitized Products Group to Apollo & PIMCO. To strengthen Credit Suisse, the Swiss bank will reduce global workforce by 9,000 employees (52,000 to 43,000 by 2025), and to raise CHF 4 billion capital to qualified investors through a rights offering, including from Saudi National Bank (committed CHF 1.5 billion). The announcement was made alongside Credit Suisse 2022 Q3 results, reporting CHF 3.8 billion in revenue, CHF 342 million in pre-tax losses, CHF 4 billion net loss to shareholders, and Group Assets under Management of CHF 1.4 trillion (2022 Q2: CHF 1.45 trillion). Credit Suisse Wealth Management Group reported AUM of CHF 635 billion in 2022 Q3 (2022 Q2: CHF 662 billion) and pre-tax income of CHF 78 million, Credit Suisse Asset Management reported pre-tax income of CHF 104 million with AUM of CHF 411 billion, Swiss Bank (businesses in Switzerland) reported pre-tax income of CHF 383 million, and Credit Suisse Investment Bank posted a pre-tax loss of $640 million.
Credit Suisse New Strategy
Credit Suisse New Strategy
- New Credit Suisse to focus 80% of capital (by 2025) on Wealth Management & Asset Management businesses, Markets (Trading) and Switzerland Businesses.
- Create CS First Boston as an independent Investment Bank
- Sells Securitized Products Group to Apollo & PIMCO
- To strengthen Credit Suisse, the Swiss bank will reduce global workforce by 9,000 (52,000 to 43,000 by 2025)
- Raise CHF 4 billion capital to qualified investors through a rights offering, including Saudi National Bank (committed CHF 1.5 billion).
Credit Suisse 2022 Q3 results
- Group CHF 3.8 billion in revenue, CHF 342 million in losses, CHF 4 billion net loss to shareholders,
- Group Assets under Management of CHF 1.4 trillion (2022 Q2: CHF 1.45 trillion).
- Credit Suisse Wealth Management Group reported AUM of CHF 635 billion in 2022 Q3 (2022 Q2: CHF 662 billion) and pre-tax income of CHF 78 million
- Credit Suisse Asset Management reported pre-tax income of CHF 104 million with AUM of 411 billion
- Swiss Bank (businesses in Switzerland) reported pre-tax income of CHF 383 million
- Credit Suisse Investment Bank posted a pre-tax loss of $640 million.
Axel P. Lehmann, Chairman of the Board of Directors of Credit Suisse:
“Over 166 years, Credit Suisse has built a powerful and respected franchise but we recognize that in recent years we have become unfocused. For a number of months, the Board of Directors along with the Executive Board has been assessing our future direction and, in doing so, we believe we have left no stone unturned.
Today we are announcing the result of that process – a radical strategy and a clear execution plan to create a stronger, more resilient and more efficient bank with a firm foundation, focused on our clients and their needs. At the same time, we will remain absolutely focused on driving our cultural transformation, while working on further improving our risk management and control processes across the entire bank. I am convinced that this is the blueprint for success, helping rebuild trust and pride in the new Credit Suisse while realizing value and creating sustainable returns for our shareholders.”
Ulrich Körner, Chief Executive Officer of Credit Suisse:
“This is a historic moment for Credit Suisse. We are radically restructuring the Investment Bank to help create a new bank that is simpler, more stable and with a more focused business model built around client needs.
Our new integrated model, with our Wealth Management franchise, strong Swiss Bank and capabilities in Asset Management at its core, is designed to allow us to deliver a unique and compelling proposition for clients and colleagues while targeting organic growth and capital generation for shareholders. The new Executive Board is focused on restoring trust through the relentless and accountable delivery of our new strategy, where risk management remains at the very core of everything we do.”
1) Strategic Priorities for Transforming Credit Suisse
Restructuring the Investment Bank
Credit Suisse intends to take decisive steps to restructure the Investment Bank and focus on areas more closely connected to its core businesses where it has a competitive advantage. This will involve transforming the risk profile of the Investment Bank and targeting a reduction in RWAs of ~40%3 by 2025 through strategic actions across four areas:
The Markets business will include the strongest and most relevant aspects of the new Credit Suisse’s trading capabilities. While remaining fully committed to serving institutional clients, its leading capabilities in cross-asset investor products as well as equities, FX and rates access will be closely aligned with the Wealth Management and Swiss Bank franchises. This will allow Credit Suisse to provide tailored solutions to clients and differentiate itself from other pure-play wealth managers. These changes are also expected to enable Markets to reinforce its position as a solutions provider to third party wealth managers. Markets will also support the newly created CS First Boston.
The Investment Bank’s capital markets and advisory activities will – following a transition period – lead to the creation of CS First Boston, a firm with a partnership culture that we believe will be competitive and attractive to anchor investors, employees and entrepreneurial clients. Drawing on its rich heritage across advisory and capital markets, CS First Boston is expected to be more global and broader than boutiques, but more focused than bulge bracket players. The future CS First Boston envisions attracting third-party capital, as well as a preferred long- term partnership with the new Credit Suisse.
A Capital Release Unit (CRU) will be created and comprise a NCU and the Group’s Securitized Products business. The NCU’s purpose is to release capital through the wind-down of non-strategic, low return and higher- risk businesses. The NCU is expected to include the remainder of Prime Services, non-Wealth Management related lending in Emerging Markets, the bank’s presence in select countries and select European lending and capital markets activities. The NCU is expected, over time, to release ~60% of RWAs4 and ~55% of Leverage Exposure by the end of 2025, allowing the bank to allocate more capital to higher-return businesses where it has clear competitive advantages.
Credit Suisse has entered into a framework and exclusivity agreement to transfer a significant portion of its Securitized Products Group (SPG) to an investor group led by Apollo Global Management. Under the terms of the proposed transaction, investment vehicles managed by affiliates of Apollo and PIMCO would acquire the majority of SPG’s assets from Credit Suisse and other related financing businesses from Credit Suisse, enter into an investment management agreement to manage the residual assets on Credit Suisse’s behalf, hire the SPG team to the new platform and receive certain ongoing services from Credit Suisse in order to maintain a seamless, high-touch experience for clients.
The transaction proposed under the framework agreement is subject to the signing of final binding documentation, which is anticipated during 4Q22. Closing of the proposed transaction would be subject to customary closing conditions and regulatory approvals and would be expected to occur during 1H23.
Key Investment Bank Appointments
Michael Klein will step down from the Board of Directors, which he joined in 2018, to act as advisor to Group CEO Ulrich Körner, helping launch CS First Boston. It is anticipated that he will be appointed CEO designate of CS First Boston, joining in 2023 and pending regulatory approvals. During this transition period, David Miller will continue in his current role as Global Head of Investment Banking & Capital Markets, reporting directly to Group CEO Ulrich Körner, and supporting the establishment of CS First Boston as an independent bank.
In addition, Mike J. Ebert and Ken Pang are appointed co-Heads of the Markets business, effective from November 1, 2022. They will report directly to Group CEO Ulrich Körner. Mike J. Ebert currently serves as Co- Head of the Investment Bank and Co-Head of Global Trading Solutions. Ken Pang currently serves as Co-Head of Global Trading Solutions and Co-Head of the Investment Bank for the Asia Pacific (APAC) region.
Christian Meissner, who has served as CEO of the Investment Bank and member of the Executive Board, has decided to leave the bank, effective immediately.
Louise Kitchen is appointed Head of CRU, effective November 1, 2022. She will report directly to Chief Financial Officer Dixit Joshi. Louise Kitchen most recently served as Head of the Capital Release Group and member of the Group Management Committee at Deutsche Bank. She previously held a number of other roles at the
bank including the Head of Institutional & Treasury Coverage, Head of Strategic Implementation and Head of Commodities Structuring and Sales. Before joining Deutsche Bank in 2005, she worked for UBS Group.
2) Cost Initiatives / Capital
Accelerating Cost Transformation
Credit Suisse plans to take significant measures to reduce the Group’s cost base by 15%, or CHF ~2.5 billion, delivering a cost base of CHF ~14.5 billion in 2025. Of this, a reduction of CHF ~1.2 billion is targeted for 2023. A comprehensive cost transformation program has been initiated and will go deeper and further than the bank has previously indicated to substantially improve long-term efficiency while retaining a focus on strengthening risk management and investing in Credit Suisse’s core businesses. Key cost transformation initiatives include non-core unit rundown and business descoping, organizational simplification, workforce management and third-party cost management.
Credit Suisse has already commenced the implementation of cost reduction activities in the second half of 2022. Measures that are already mandated include a targeted 50% reduction in consultancy spend and a 30% reduction in contractor spend with the benefits expected in 2023. A headcount reduction of 2,700 full-time-equivalent employees (FTE), or 5% of the Group’s workforce, is already underway in 4Q22. Credit Suisse expects to run the bank with ~43,000 FTE by the end of 2025 compared to ~52,000 at the end 3Q22, reflecting natural attrition and targeted headcount reductions.
Strengthening and Reallocating Capital
Credit Suisse has today announced its intention to raise capital with gross proceeds of CHF ~4.0 billion through the issuance of new shares to qualified investors and through a rights offering for existing shareholders, subject to approval at the EGM. These capital raises should support an increase in the 3Q22 CET1 ratio from 12.6% to a pro-forma CET1 ratio of ~14.0%. In addition, the successful execution of the Securitized Products exposure reduction and other planned divestments as well as RWA and leverage reductions from the new NCU are expected to release further amounts of capital to support the execution of the strategic transformation. Accordingly, the bank expects to maintain a pre-Basel III reform CET1 ratio of at least 13.0% throughout 2023- 2025 with an expected 2025 pre-Basel III reform CET1 ratio in excess of 13.5%.
Credit Suisse further intends to reallocate capital to its core, higher-return businesses. The share of RWAs in Wealth Management, the Swiss Bank and Asset Management, together with Markets, is estimated to increase to almost 80%5 by 2025, with the intention of growing the revenue share of these businesses to over 85%6 by 2025. CS First Boston is estimated to account for a further 9%7 of RWAs and ~14%8 of the revenue share by 2025.
France Financial Crime Agency Fines Credit Suisse $237 Million in Penalty for Tax Charges, Cross-Border Private Banking Service to Clients & Avoiding Tax
28th October 2022 – France’s national financial crime agency (Parquet National Financier, PNF) has fined Credit Suisse a total of $237 million in penalty for tax charges, providing cross-border private banking service to French clients and with client avoiding tax (as a result). In 2016, Parquet National Financier (PNF) started the investigation on Credit Suisse providing cross-border private banking service to French clients, and helping them to avoid tax through foreign bank accounts. The fine of $237 million (EUR 238 million) comprised of giving up EUR 65.6 million in profits, additional payment of EUR 57.4 million, and EUR 115 million to French government for damages. Credit Suisse: “The settlement does not comprise a recognition of criminal liability. The bank is pleased to resolve this matter, which marks another important step in the proactive resolution of litigation and legacy issues.” Earlier in October 2022, Credit Suisse had won a United States verdict for their foreign exchange (FX) price rigging lawsuit with potential $19 billion damages, with 15 other banks having paid a total of $2.3 billion to settle the lawsuits. See more below on Credit Suisse lawsuits.
Credit Suisse Wins United States FX Price-Rigging Lawsuit, 15 Banks Paid $2.31 Billion in Settlement
Credit Suisse has won a United States verdict for their foreign exchange (FX) price rigging lawsuit with potential $19 billion damages, with 15 other banks having paid a total of $2.3 billion to settle the lawsuits. Public pension funds and clients had sued a total of 16 banks including Credit Suisse for traders using chat groups to fix prices. Earlier in June 2022, 13 banks including UBS, BNP Paribas, Bank of America and Barclays have agreed to pay $91 million in an investor class action settlement (New York, United States federal court) for Singapore interest rate rigging conspiracy. 6 defendants who have already agreed to pay the settlement of $64 million are Credit Suisse, Deutsche Bank, HSBC, ING, Citibank & JP Morgan. Both settlements bring the total number of banks involved to 19, and the total settlement of $155 million. Credit Suisse: “Credit Suisse is extremely pleased that the jury agreed with us that plaintiffs’ case had no merit.”
Earlier in October 2022, Credit Suisse reached a $495 million settlement ($300 million in restitution for investors) for fraud in the sale of toxic mortgage-backed securities between 2006 to 2007 (before the 2008 Global Financial Crisis), with Credit Suisse paying a total $5.875 billion fine since 2017 (United States Department of Justice $5.28 billion in 2017; New York Department of Justice $10 million in 2018, New Jersey Attorney General Office $495 million in 2022). Credit Suisse will make a one-time payment of $495 million to fully resolve claims tied to more than $10 billion.
Also in October 2022, Credit Suisse is reported to be under investigation by the United States authorities (Department of Justice) for helping clients evade tax, continuing to do so after the 2014 tax settlement fine of $2.6 billion. The investigation is focused on clients in United States (with South American Passports).
In September 2022, Credit Suisse reached a $32.5 million settlement shareholders’s lawsuit for misleading shareholders (United States District Court in Manhattan) on strong risk management, including exposure to collapsed $120 billion Archegos family office & $10 billion Greensill Funds. In December 2021, Credit Suisse fired 2 investment managers (Portfolio Manager & Head of Fixed Income) who were involved in the failed $10 billion Greenhill Fund. Credit Suisse was hit by the troubled Greensill $10 billion supply-chain financing fund, which was introduced as a safe investment product to many of its institutional clients including pension funds and sovereign wealth funds. In 2022 April, Credit Suisse Life Bermuda lost a $500 million lawsuit to former Georgian Prime Minister Bidzina Ivanishvili for illegal trades by former Credit Suisse Private Banker Patrice Lescaudron that resulted in hundreds of millions of losses. In 2018, former Credit Suisse Private Banker Patrice Lescaudron was convicted in Switzerland for forging client signatures to 5 years imprisonment, and later committed suicide in 2020. In September 2022, Bidzina Ivanishvili sued Credit Suisse Trust in Singapore for losing $1.27 billion for failing to safeguard his investments in a fraud committed by former Switzerland-based private banker Patrice Lescaudron. The trial began in Singapore on the 5th of September 2022. At the opening statement, Credit Suisse Trust had calculated the losses at $818.2 million, instead of the estimate of $1.27 billion by Bidzina Ivanishvili.
In July 2022, Credit Suisse had been fined $2.1 million by a federal criminal court (Switzerland) for money laundering linked to a Bulgarian cocaine trafficking crime ring, with a further payment of around $20 million to be paid to the Swiss government and a former Credit Suisse employee sentenced to 20 months imprisonment. The case happened more than 14 years ago and Credit Suisse will appeal the court decision. Credit Suisse Statement: “Credit Suisse Group has taken note of the Swiss Federal Criminal Court’s decision to impose a fine of CHF 2 million against Credit Suisse AG for certain historical organizational inadequacies (article 102 of the Swiss Criminal Code) for the period between July 2007 and December 2008. The investigation dates back more than 14 years. The bank will appeal the decision.
Credit Suisse is one of the world’s leading financial services providers. The bank’s strategy builds on its core strengths: its position as a leading wealth manager, its specialist investment banking capabilities and asset management capabilities and its strong presence in its home market of Switzerland. Credit Suisse seeks to follow a balanced approach to wealth management, aiming to capitalize on both the large pool of wealth within mature markets as well as the significant growth in wealth in Asia Pacific and other emerging markets, while also serving key developed markets with an emphasis on Switzerland. The bank employs more than 50,000 people. The registered shares (CSGN) of Credit Suisse Group AG, are listed in Switzerland and, in the form of American Depositary Shares (CS), in New York. Further information about Credit Suisse can be found at www.credit-suisse.com.