Credit Suisse saw around $68 billion in outflows in the first quarter of 2023 as clients continued to exit the troubled bank, highlighting a challenge UBS faces as it acquires its rival, an earnings statement showed Monday.
Credit Suisse said its customer exodus accelerated in the days leading up to the government-orchestrated takeover by UBS on March 19.
“These outflows, which were most acute in the days immediately preceding and following the announcement of the merger, stabilized to much lower levels, but had not yet reversed as of April 24, 2023,” Credit Suisse said Monday.
Most of the money leaving the bank was from its flagship wealth-management unit, which lost 9% of assets in the first quarter, the report said.
Analysts predict that both Credit Suisse and UBS might lose wealthy clients who have accounts at each institution but would now like to diversify their funds.
“The magnitude of losses and outflows is alarming,” Thomas Hallett, an analyst at Keefe, Bruyette & Woods, told the Financial Times 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,” Hallett added.
The embattled bank also terminated its acquisition of M. Klein & Co, the investment banking business of Michael Klein, Credit Suisse confirmed Monday in the statement.
The deal was aimed at a part of the lender’s plan to spin off its capital markets and advisory units under the First Boston brand and was to be run by Klein.
Separately, Christian Bluhm, chief risk officer of UBS, who announced his retirement to become a full-time photographer in November, would continue his role “for the foreseeable future” to help with the UBS-Credit Suisse integration, the bank said Monday, according to the Financial Times.
Credit Suisse saw a 9% reduction in employees since the third quarter last year.
Credit Suisse reported an adjusted 1.3 billion Swiss francs in pre-tax losses for the quarter, with a pre-tax profit of 12.8 billion francs largely stemming from the write-down of Additional Tier 1 bonds and a gain from selling a significant portion of its Securitized Products Group to Apollo Global Management.
The AT1 bonds write-down to zero temporarily boosted the bank’s common equity tier 1 ratio to 20.3% as of the end of Q1 2023 — up from 14.1% at the end of Q4 2022.
Holders of the AT1 bonds — a debt instrument created after the 2007-08 financial crisis that can be converted to common equity, have hit the Swiss regulator Finma with a lawsuit alleging they were penalized unnecessarily while violating their property rights, according to the summary of the filing.
This is the first lawsuit in the public domain related to the Swiss regulator’s decision to render roughly $17 billion worth of Credit Suisse AT1 debt valueless.
“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 2Q23 and 2023,” Credit Suisse noted.
UBS will report its earnings Tuesday.
