Reports

Adjusted Pre-Tax Income Drops At Credit Suisse

Tom Burroughes, Group Editor, 29 July 2021

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Inevitably, results were affected by the after-shocks of the supply-chain finance and Archegos Capital implosions that had hit the bank earlier in the year. Credit Suisse announced results of an externally-led investigation it had commissioned into these affairs.

Credit Suisse, which earlier this year reported big losses stemming from exposure to the collapsed Archegos and Greensill businesses, today reported that on an adjusted basis it logged pre-tax income of SFr1.313 billion ($1.44 billion) in the three months to 30 June, falling 11 per cent year-on-year.

Net revenues fell 14 per cent year-on-year to SFr5.226 billion on an adjusted basis, the Zurich-listed bank said in a statement. The adjustments excluded significant items.

Along with its rivals, Credit Suisse had set aside significant capital last year to handle the COVID-19 pandemic and swung into a net release of capital this year. It logged SFr296 million in provision for such losses last year. It moved to a negative figure of -SFr25 million in the quarter.

The bank said that its Common Equity Tier 1 ratio – a common international standard of capital strength – stood at 13.7 per cent at the end of June, up from 12.5 per cent a year ago. 

Total operating costs on an unadjusted basis stood at SFr4.315 billion, dipping 1 per cent year-on-year.

Inevitably, interest in Credit Suisse’s results has focused on the aftermath of the losses it logged in Q1 and the changes – including moves of some senior personnel – in the wake of the Archegos Capital and the supply-chain finance episodes. As reported this week, the firm has appointed a new chief risk officer.

“Credit Suisse delivered resilient underlying second quarter results and strong capital ratios as we are benefitting from having taken decisive actions to address the challenges raised by the Archegos and supply-chain finance funds' matters. We take these two events very seriously and we are determined to learn all the right lessons. We have significantly reduced our RWA [risk-weighted assets] and leverage exposure and improved the risk profile of our Prime Services business in the investment bank, as well as strengthened the overall risk capabilities across the bank,” Thomas Gottstein, chief executive, said. 

Wealth management
The bank said its wealth management assets under management reached a record SFr853 billion at the end of June.

Wealth management-related businesses reported net revenues of SFr3.6 billion, rising 2 per cent from a year ago. On an adjusted basis, excluding significant items, revenues dropped 5 per cent. 

“We saw strong momentum in recurring commissions and fees, up 15 per cent benefitting from AuM and client business volume growth and an increased mandate penetration at 30 per cent, up from 28 per cent in 2Q20, offset by lower transaction and performance-based revenues, down 16 per cent, due to lower client activity compared to 2Q20 and lower revenues in global trading solutions (GTS),” the bank said.

Asia growth
The bank noted how it continued to build out its mainland China franchise, along with hires in much of Asia – a key region for the bank and rivals. 

“We continue to invest in technology and people in the Investment Bank and have also further built out the IWM mid-market advisory capabilities and continue to invest in deepening our wealth management footprint in fast-growing markets like Brazil, India, Russia and the Middle East. Furthermore, we have ongoing investments in CSX, our SUB digital platform for retail and affluent clients as well as in our ultra-high net worth (UHNW) and high net worth (HNW) franchises. This is in addition to investing in enhanced IT platforms, building out our cloud technology and strengthening our cyber security as well as driving digitalisation and automation,” it said. 

The Credit Suisse group reported a higher level of assets under management, totalling SFr1.63 trillion, rising 2 per cent from the previous quarter. There were SFr4.7 billion of net asset outflows in the second quarter, versus inflows of SFr9.8 bn in 2Q20 and SFr28.4 billion a year ago. The bank said some of the outflows in the wealth businesses, and in regions such as Asia, were linked to the bank’s de-risking efforts.

Investment bank
At the investment bank, the Archegos affair took its toll but Credit Suisse said this business delivered a “resilient underlying performance” in spite of a weaker trading environment, compared with an “exceptional” second quarter last year when market volatility spiked, and in spite of putting in place measures to cut risk-weighted assets and leverage exposure because of its more conservative risk management approach. Net revenues fell 41 per cent to SFr1.8 billion. 

Investment bank results included pre-tax losses of SFr653 million relating to Archegos. Adjusted net revenues, excluding Archegos, fell 23 per cent.

Investigations
The bank also announced results of an external probe it commissioned to examine the Archegos and supply-chain finance sagas, and the lessons that had to be learned. 

On the Archegos matter, the investigation found that the bank failed to effectively manage risk in its Prime Services business by both first and second lines of defence; it did not escalate risks and to control limit excesses across first and second lines of defence and did not discharge supervisory responsibilities across first and second lines of defence. It also did not prioritise risk mitigation and enhancement measures. The bank said, however, that the probe showed that risk personnel had not acted illegally or fraudulently, or with ill intent. The bank said it was already in the process of changing the leadership of the investment bank and putting in other measures.

Turning to the supply-chain finance issues, Credit Suisse said “returning cash to investors and maximizing recoveries remain CSAM’s [Credit Suisse Asset Management’s] top priority. Taking into account the upcoming fourth distribution, planned for the first half of August of approximately $0.4 billion, the total cash distribution to investors will stand at approximately $5.9 billion.”

“Together with the cash distributed to date and cash remaining in the funds, the cash position is equivalent to approximately $6.6 billion, or 66 per cent, of the funds’ net asset value at the time of their suspension,” it said.

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