LONDON — Credit Suisse has experienced a staggering outflow of $68.6 billion in the first quarter of this year, as a result of its clients fleeing the troubled bank.
These figures highlight the immense challenge facing UBS, which took over its Swiss rival in the wake of the crisis.
The situation was most severe in the days prior to the Swiss regulators stepping in to orchestrate the rescue by UBS, and Credit Suisse has confirmed that although outflows have since stabilized, they have not reversed.
These revelations are the first since the takeover deal was struck, providing clear evidence of the damage inflicted on the business, which led to the regulatory intervention.
Credit Suisse’s flagship wealth management division was hit hardest, losing 9% of its assets in the first quarter alone, which will significantly impact the fees generated by the bank.
This is expected to result in a substantial loss in wealth management for the second quarter, according to Credit Suisse’s first-quarter results.
The $3.25bn acquisition of Credit Suisse marks the first time that two global systemically important financial institutions have merged since the financial crisis of 2008-2009, carrying significant integration risks for UBS.
Analysts have warned that both banks could suffer a loss of customers, especially among the wealthy who hold accounts at each institution and may now seek to diversify their investments.
“The magnitude of losses and outflows is alarming,” said Thomas Hallett, an analyst at Keefe, Bruyette & Woods, on Monday.
“There is more to come. Simply put, even if UBS is able to take out SFr8bn of costs by 2027, the revenue trajectory is so damaged that the deal could well remain a drag on UBS operating results unless a deeper restructuring plan is announced,” he added.
Credit Suisse has disclosed an adjusted pre-tax loss of SFr1.3bn for the quarter, with the bank’s net income of SFr12.4bn for the same period appearing inflated by a SFr15bn accounting gain, which emerged from the contentious write-off of certain Credit Suisse bondholders as part of the rescue effort.
Investors who hold additional tier one capital notes, a form of debt that can be converted into equity, have launched legal proceedings against Switzerland’s banking regulator, Finma, in response to the decision to write off some of Credit Suisse’s bondholders. This lawsuit is likely to be the first of many such claims in the coming years.
Despite the legal challenge, this move has had a short-term positive effect on Credit Suisse’s common equity tier one ratio, which is a key measure of its financial strength, boosting it from 14.1% to 20.3%.
“In light of the merger announcement, the adverse revenue impact from the previously disclosed exit from non-core businesses and exposures, restructuring charges and funding costs, Credit Suisse would also expect the investment bank and the group to report a substantial loss before taxes in [the second quarter] and 2023,” the bank said.
Credit Suisse has also terminated its proposed $175mn acquisition of M Klein & Co, the advisory firm led by the bank’s former director, Michael Klein.
The acquisition had formed part of Credit Suisse’s strategy to separate a large portion of its investment bank under the First Boston banner, which was to be run by Klein.
Separately, UBS has announced that its chief risk officer, Christian Bluhm, who had previously announced plans to step down and pursue a career as a full-time photographer, will now be staying in his current position “for the foreseeable future.”
This decision has been made to help facilitate the integration of Credit Suisse following UBS’s acquisition of the bank.
UBS reports its first-quarter results on Tuesday morning.
