Credit Suisse Group AG reported first-quarter outflows of 61.2 billion francs ($69 billion), underscoring UBS Group AG’s challenge in retaining key clients and assets following the emergency acquisition. They also made a sizable write down at its wealth management subsidiary.
Increased Business Profit
Wealthy clients and regular depositors withdrew billions during several frantic days in March. It was when Credit Suisse’s largest shareholder, the Kingdom of Saudi Arabia, stated it would not make any additional investments in the company.
It was the bank’s second confidence crisis in as many months. Out of concern that Credit Suisse would fail, the Swiss government ultimately engineered its rescue by its biggest rival.
UBS faces integration risks for up to four years, as withdrawals and losses reveal potential dangers. The UBS Chairman Colm Kelleher believes it will be more complex than many bank takeovers during the 2008 financial crisis. It claimed that outflows have lessened but not yet reversed. Credit Suisse lost around 6.9 billion in outflows at the Swiss unit, primarily in the private customers’ sector.
The bank’s first-quarter pre-tax profit was 12.8 million Swiss francs thanks to the write-down to 0–15 billion Swiss francs of additional tier 1 capital notes as part of UBS’s acquisition of Credit Suisse. The Swiss government claimed the action was within its powers under the securities contract. However, the decision was still highly contentious, leading many investors to consider legal action. Without the change, Credit Suisse reported a quarterly loss of 1.3 billion Swiss francs.
After repaying 60 billion francs in borrowings to maintain its liquidity levels, Credit Suisse’s borrowings from the Swiss National Bank, at the end of the first quarter, were 108 billion francs. Following the end of the quarter in April, it made another 10 billion franc repayment.
Rescue Package and Restructuring
Credit Suisse’s customer deposits declined by over half in six months, with a further 67 billion plunging in the first quarter. It required a rescue package despite the central bank’s assistance.
According to Bloomberg News, Credit Suisse started its most recent restructuring in October, which might lead to losing up to 9,000 jobs. The continued asset withdrawals and banker exits have voiced concerns about the viability of the wealth division that UBS will take over. On Monday, Credit Suisse issued a warning, noting that recent events had already increased personnel turnover.
UBS Wealth Management and Credit Suisse CEOs have attended town hall meetings. Let the key staff know that the new owner will offer incentives and retention packages to prevent talent migration. Khan previously oversaw the worldwide wealth division at Credit Suisse. His action underscores UBS’s concern that competitors would use the commotion to swoop in and extort clients and staff.
Credit Suisse had already seen a loss of nearly 110 billion francs in client assets. It was during the fourth quarter after a social media uproar raising questions about the bank’s financial stability spurred a flight to safety. Before Monday’s statement, analysts at Citigroup Inc. predicted that Credit Suisse would likely lose another 110 billion francs—or roughly a fifth of its client assets—following its merger with UBS.
