Credit Suisse has laid bare the magnitude of the bank run that forced it to succumb to a rescue takeover last month after revealing that fearful clients pulled £55 billion from the group during the first quarter.
The stampede away from the bank included net outflows of SwFr47.1 billion (£42.5 billion) from its wealth management business, which is a core part of the group, in the three months to the end of March.
It said that during the second half of last month, which was when Swiss authorities stepped in to orchestrate a rescue of the bank by its domestic rival UBS, it “experienced significant withdrawals of cash deposits as well as non-renewal of maturing time deposits”.
Customer deposits slid by SwFr 67 billion during the quarter, while the overall net asset outflows suffered by the group in the period had totalled SwFr61.2 billion, or about £55 billion.
“These outflows, which were most acute in the days immediately preceding and following the announcement of the merger, stabilised to much lower levels, but had not yet reversed as of April 24,” Credit Suisse added.
The withdrawals, which were disclosed in the lender’s first-quarter results, for the first time shed light on the crisis of confidence that pushed Credit Suisse to the brink of collapse.
The Zurich-based group is Switzerland’s second biggest bank and can trace its roots back 167 years, making it one of the mainstays of the country’s financial services industry.
Its implosion last month has shaken and angered the Swiss public. At the behest of the Swiss authorities, the bank will now be subsumed into UBS, which is the country’s largest bank, in a deal that is expected to result in tens of thousands of job losses.
Credit Suisse had for years been dogged by scandals and setbacks and last August it appointed Ulrich Körner as its chief executive to try to return the loss-making business to profit.
Körner’s plan, which he set out in October, involved a radical restructuring of the group, including a spin-off of part of its troubled investment banking division. Yet his turnaround was expected to take years. In the meantime, Credit Suisse continued to rack up losses and in February reported that it had slumped SwFr7.29 billion into the red for 2022, its worst result since the 2008 financial crisis.
When three regional American lenders failed in March, investors feared that years of problems had left Credit Suisse vulnerable to stresses in the wider banking system. This triggered a run on the bank and culminated in its cut-price sale of UBS for SwFr 3 billion to avoid a disastrous collapse.
One element of Credit Suisse’s rescue that has proved controversial among investors is the Swiss regulator’s decision to write down the bank’s so-called additional tier 1 (AT1) bonds to zero, even though the UBS takeover preserves some value for shareholders. This upends market convention that equity investors suffer losses before bondholders.
Credit Suisse said today that the wiping out of SwFr 15 billion of AT1 debt had propelled its pre-tax net income to SwFr 12.8 billion in the first quarter.
Körner’s overhaul plan had involved a $210 million deal to buy the New York-based boutique firm run by Michael Klein, a veteran American financier and former Credit Suisse board member, and then spin off part of the investment banking division under the First Boston brand. Klein would have run the separated First Boston business in a potentially lucrative venture for the American dealmaker.
However, Credit Suisse revealed today that this plan had been axed. The Swiss bank said that it and Klein’s firm had “mutually agreed to terminate the acquisition” of his boutique business.
Credit Suisse shares, which have fallen 87 per cent over the past year, edged up SFr 0.02, or 2 per cent, to SFr 0.8.
Source: The Times
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