Credit Suisse shareholders know by now that no news is the best news. An obligatory update from the stricken Swiss bank rammed the point home. Credit Suisse is forecast to make a SFr1.5bn ($1.6bn) pre-tax loss in the final quarter of the year. Darkening the mood further, the lender recorded net outflows in wealth management equal to a tenth of assets in six weeks.
None of this inspires confidence in the over-complex restructuring plan investors had gathered to sign off on. Shares fell up to 5 per cent to trade at their lowest level on record since 1975.
In theory, the turnround begins on Thursday when terms for the rights issue portion of a SFr4bn ($4.2bn) capital raise are released. A stronger balance sheet is one part of the proposed rejig. Weakness in wealth management, part of the bank’s “new core”, threatens that aspiration.
Net outflows were already afflicting every region and every business line during the third quarter. The group cannot credibly blame the downturn. Peers are still attracting new funds. UBS took in $17bn of net new wealth management money in its third quarter. Julius Baer said on Monday it had garnered $4.3bn between June and October.
Following the capital raise, Credit Suisse is targeting a common equity tier one ratio of 14 per cent. It believes that is sufficient to shrink its investment banking assets by 40 per cent and turn itself into a lower risk business.
Restructuring costs will eat into capital. But asset sales will provide some support. Capital generation from core businesses is a key pillar to achieving a CET1 ratio of 13.5 per cent by 2025.
Following this year’s steep losses, net income might break even in 2023. Combined net profits in 2024 and 2025 are then expected to be SFr4bn, according to Visible Alpha. Wealth management is expected to generate half of that total at an operating level.
The exodus of wealthy clients is already putting that assumption to the test.
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