Because of the development in investment banking, the bank Credit Suisse warns of another loss in the second quarter. Saving measures are to be accelerated in order to cushion the weak earnings. Analysts fear a kind of downward spiral.
The crisis-plagued Credit Suisse is heading for the third quarterly loss in a row. However, legacy issues are not the trigger for the fourth profit warning within five quarters, but rather the downturn in parts of the operating business. But while the bank primarily blamed the difficult market environment, analysts believe the predicament is at least partly self-inflicted. In any case, the investment bank is likely to pull the group into the red in the second quarter of 2022. The bank did not give any figures.
The rise in interest rates and the slump in business with IPOs, capital increases and bond issues weighed on the financial development of the investment bank in April and May, as the institute announced. But the bank is also facing headwinds in its core business with millionaires and billionaires. Customers would have kept their feet still because of fluctuations in the financial markets. In addition, they would have repaid loans to finance securities transactions in order to reduce their risks. This applies in particular to the Asia-Pacific region. Both cost the bank fee income.
The bank kept its outlook for the remainder of the year vague. She only reiterated that 2022 would be a transition year. In order to cushion the weak earnings, the bank now wants to speed up the austerity measures. According to a report by the Bloomberg news agency, the institute is examining new job cuts. Credit Suisse declined to comment.
The statement said: "Given the economic and market environment, we are accelerating our cost initiatives across the group with the goal of maximizing savings from 2023 onwards." So far, the bank had targeted annual cost savings of CHF 1.0 to 1.5 billion by 2024. The bank will announce details of the cost measures at an investor event on June 28th. CEO Thomas Gottstein is also likely to comment on this at a conference on Thursday.
Analysts fear a kind of downward spiral. As in the past, the austerity program is likely to spoil the mood of employees this time and again have a negative impact on earnings, commented Vontobel analyst Andreas Venditti. Credit Suisse shares fell by around six percent on the stock exchange. Since the beginning of March 2021, the share has lost more than half of its value. At that time, the emergency liquidation of funds managed together with Greensill began. A little later, the collapse of a hedge fund customer cost the bank five billion francs. In addition, there are expensive court cases and scandals surrounding the top of the bank.
For fear of further failures, the group has now become so cautious that it has now refrained from doing business. The lower risk appetite also affects earnings and has caused the institution to lag behind other banks. While Morgan Stanley and Goldman Sachs have recently been close to their record quarters in investment banking, Credit Suisse regularly reports losses here, according to Citi analyst Andrew Coombs. Business is also eroding in asset management. "Another quarter, another profit warning," he captioned his assessment.
"What used to be a rarity is now the norm." Credit Suisse does not want to change the strategy, which envisages substantial investment banking in addition to business with wealthy private customers. In the short term, Credit Suisse also intends to operate with a Common Equity Tier 1 (CET1) ratio of around 13.5 percent. The bank is still aiming for a core capital ratio of more than 14 percent by 2024.
The Reuters news agency reported last week that, according to insiders, the bank is considering measures to strengthen capital. One option is a capital increase. In the first quarter, the institute had already made a loss of 273 million francs, in the three months before that a deficit of 2.1 billion francs.
