Trouble Brewing For Credit Suisse As Stock Price Plummeted To An Unprecedented Level

After a tumultuous start to the year, shares of Swiss investment giant, Credist Suisse dropped off precipitously in late 2022. This sharp decline was prompted by abysmal quarterly earnings and allegations of regulatory violations -- leading to investors pulling out over $88 billion from the bank prompting them to request emergency funds from the Federal Reserve through SNB swap lines. The losses incurred by the banking behemoth were nothing short of staggering. The corporate restructuring was a defining moment for the bank, resulting in the de facto closure of its investment arm as well as numerous layoffs. Many believed that this drastic shift foreshadowed further upheaval, yet their assumptions were proven wrong. What followed was even more drastic than anyone had imagined; the (rapidly altering) management had effectively thrown out the kitchen sink.

Ulrich Koerner, the new CEO of Credit Suisse, encountered a significant challenge this Thursday as the Swiss Bank's shares plummeted 12% due to an unexpected fourth-quarter deficit and an alarming amount of customer withdrawals. These results put pressure upon Koerner's goal to restore profitability by 2021. KBW analysts were stunned by the second-largest Swiss bank’s record level of customer capital outflows in a fifth-straight quarterly loss. At 1.39 billion Swiss francs ($1.5 billion), this operating loss was worse than expected, as revenue also fell short at 3.06 billion Swiss francs compared to predictions of 3.35 billion. What left experts perplexed was 110.5 billion francs in capital outflows for this quarter, and although some money has been returning, it appears that 2023 will begin from an even weaker platform than before.

Analysts at Credit Suisse predicted a “bleak” outlook for the first quarter and full year of 2023, warning of a “substantial” pretax loss early into the year. Such dire predictions by Bloomberg Intelligence further emphasized this concerning reality, indicating the large outflows and drop in investment-bank revenue will present major obstacles ahead. In order to prevent its downfall, Credit Suisse has been putting a lot of effort into a client outreach program in an attempt to win back the trust and money of anxious customers. Recently, the bank reported that much progress has been made in carrying out their plan, such the acquisition of Michael Klein's advisory firm. However, there are still only faint indications that customer confidence is being restored.

In a conversation with Bloomberg Television's Francine Lacqua, Koerner expressed that he hoped the bank would be profitable come 2024. He then added that the following year, 2023, was going to be "transformative", despite having no grounds on which to support such a statement. Unfortunately, this means that 2023 will still likely bring about more losses; consequently, it has become difficult for Koerner to inspire either employees or investors to stick around in light of diminished bonuses and diminishing stock levels. A significant decrease in Credit Suisse's assets can be seen when comparing the end of 2021 to 2022. A total of 1.3 trillion Swiss francs in assets were managed by the bank at the end of last year, dropping a drastic 20% from before.

Analyzing JPMorgan's current economic state, Kian Abouhossein has commented that the franchise is deteriorating more quickly than anticipated. With lower deposits and assets under management (AuM) it appears likely that net interest income, recurring commissions and fees will diminish resulting in a loss for wealth management during 1Q23. The outlook for the rest of 2023 will be largely dependent upon strategy execution, net asset flows and market trends.

Simply put, this Swiss firm is in an increasingly harsh situation - one which is rapidly devolving to dire straits.