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Home News Scandal-plagued Credit Suisse warns profits to take hit

Scandal-plagued Credit Suisse warns profits to take hit

Published on 25/01/2022

Credit Suisse warned Tuesday that litigation would hit fourth-quarter profits while its investment bank faces a loss, in the latest blow to the scandal-plagued financial giant.

The announcement comes just a week after Credit Suisse chairman Antonio Horta-Osorio resigned for breaching Switzerland’s Covid quarantine rules.

Horta-Osorio, who had been on the job for just under nine months, had pledged to improve risk management at Credit Suisse after the bank was rocked by the implosions of financial firms Greensill and Archegos last year.

In the latest setback, the bank announced Tuesday that its fourth-quarter profits “will be negatively impacted” as it set aside 500 million Swiss francs ($545 million, 482 million euros) for litigation.

“These litigation provisions have been incurred in respect of a number of cases where the Group has more proactively pursued settlements and primarily relate to legacy litigation matters from our investment banking business,” Credit Suisse said.

The provisions will be partly offset by real estate sales of 225 million Swiss francs.

The bank, which will announce full-year and four quarter earnings on February 10, said it expects that pre-tax income broke even in the final three months of 2021.

Credit Suisse said it had seen a reduction in transaction-based revenues in its investment bank and wealth management businesses.

“This reflects the usual seasonal slowdown but, in addition, business activity reflects the reversion to more normal trading conditions after the exceptional environment that prevailed for most of 2020 and 2021,” it said.

“Combined with the reduction in our overall risk appetite, including our decision to substantially exit our prime services business, this has resulted in a loss for the fourth quarter 2021 in the Investment Bank division.”

The bank reported a “significant slowdown” in transactions in its international wealth management and Asia-Pacific divisions, with the latter affected by client deleveraging due to “adverse market conditions” in the region.

Credit Suisse’s fourth-quarter loss “is twice as large as we had estimated”, said Vontobel market analyst Andreas Venditti, who put the figure at around 1.6 billion Swiss francs.

– Billions lost –

Credit Suisse had announced in November a three-year reorganisation plan that dramatically pares back its investment bank activities and refocuses on wealth management.

The bank said at the time that it would place limiting and managing risks at the heart of its company culture.

The collapse of US hedge fund Archegos last year cost Credit Suisse some $5.5 billion.

An independent external investigation into the Archegos fiasco found a failure to manage risk effectively at Credit Suisse.

The bank has also been repaying billions of dollars to investors who placed money in funds linked to the collapse of British financial firm Greensill.

In addition, Credit Suisse was slapped with nearly half-a-billion dollars in fines last year over its role in Mozambique’s giant financial crisis.

Credit Suisse has appointed Axel Lehmann, who joined the bank just three months ago to chair the board’s risk committee, to take over from Horta-Osorio.

The Portuguese banker resigned after reports that he had travelled in violation of Switzerland’s self-isolation rules late last year.