big loss as litigation costs bite

A sign above the entrance to the Credit Suisse Group AG headquarters in Zurich, Switzerland, on Monday, Nov. 1, 2021.

Thi My Lien Nguyen | Bloomberg | Getty Images

LONDON — Credit Suisse on Thursday announced that it swung to a loss in 2021, after a tumultuous year led to a significant increase in litigation provisions.

The Swiss lender posted a full-year net loss of 1.57 billion Swiss francs ($1.7 billion), well below expectations of a 377.95 million Swiss franc loss, according to Refinitiv. The bank reported a fourth quarter net loss attributable to shareholders of 2.01 billion Swiss francs. Analysts had expected a profit of 25.73 million Swiss francs.

The bank said it took “major litigation provisions” of 1.1 billion Swiss francs in 2021.

Credit Suisse has been embroiled in a series of high-profile scandals in recent years, most recently when its chairman Antonio Horta-Osorio resigned last month after repeatedly violating Covid-19 quarantine rules.

Horta-Osorio had come in with the intention of cleaning up the bank’s corporate culture after its investment banking division suffered considerable hits in 2021 due to its involvement with collapsed investment firm Archegos Capital and insolvent supply chain finance company Greensill.

In the bank’s earnings report, CEO Thomas Gottstein acknowledged that 2021 was a “very challenging year” for Credit Suisse.

“Our reported financial results were negatively impacted by the Archegos matter, the impairment of goodwill relating to the Donaldson, Lufkin & Jenrette (DLJ) acquisition in 2000 and litigation provisions, as we look to proactively resolve legacy issues,” Gottstein said.

During the last three quarters of the year, Gottstein said the bank was run with a “constrained risk appetite across all divisions,” as it attempted to strengthen risk and controls processes and continued remediation effort, including returning cash to investors following the supply chain finance funds issue.

“Our clear focus remains on the disciplined execution of our new Group strategy as announced in November 2021: strengthening our core and simplifying our organization as we look to invest for growth in key strategic business areas,” Gottstein added.

Gottstein took the helm in early 2020 after former CEO Tidjane Thiam resigned following a bizarre and protracted spying scandal that rocked Switzerland’s second-largest bank to its foundations.

Other highlights from Thursday’s earnings:

  • CET 1 (common equity tier one capital) ratio, a measure of bank solvency, reached 14.4% from 12.9% a year ago.
  • Fourth-quarter net revenues stood at 4.58 billion Swiss francs, from 5.22 billion Swiss francs a year earlier.
  • Total operating expenses were 6.18 billion Swiss francs, versus 5.17 billion a year ago.

Speaking to CNBC on Thursday, Gottstein said 2022 will be a transitional year for the bank as it navigates its restructure, technological changes, exit of its prime brokerage business, and uncertainty around inflation, central bank policy, Covid-19 and geopolitical tensions.

“These will all be steps that we see the benefit coming through over time, but not in the short term, so ’22 is a transition year for the firm,” he said.

Asked about how the bank can assuage shareholder concerns about the string of scandals in recent years, Gottstein said implementing the new strategy was central.

“We want to operate the bank as a stronger bank, we have a stronger capital base, we have 14.4% CET1 ratio and 6.2% tier one leverage ratio, one of the strongest in the whole peer group,” he said.

“So we are very well positioned now in terms of balance sheet, but we now have to implement the strategy, and that’s really what [the shareholders] want to hear.”

Andrea Enria, chair of the European Central Bank supervisory board, told CNBC on Thursday that while increasing interest rates and rising growth should be positive for banks in the coming years, a bumpy exit caused by “highly leveraged, highly concentrated” segments of the market poses a risk.

“Following the Archegos case, we have been focusing more on the prime brokerage segment. We are planning on-site inspections in that area. We have asked banks to strengthen their controls, their risk management controls in that area,” Enria said.

Wealth management woes

Along with its reduced risk appetite, Credit Suisse also said that a return to a “more normal trading environment” after the exceptional conditions of the Covid pandemic had impacted net revenues, which were down 12% year-on-year in the fourth quarter.

“This was most evident in the Investment Bank, largely due to our exit of Prime Services and the strong comparable performance in 4Q20, but our Wealth Management-related businesses also saw a reduction in transaction-based revenues,” it said.

Credit Suisse’s wealth management-related businesses posted an 8% decline in net revenues year-on-year due to lower transaction and performance-based revenues, which fell 25%. The bank attributed this in large part to reduced revenues at its global trading solutions division, lower client activity and lower net interest income, which fell 5% annually.

The bank’s shares are down more than 27% over the past 12 months.

— This is a breaking news story and will be updated shortly

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