Credit Suisse shares fell 5% on ‘material weaknesses’ in financial reporting

  • The troubled Swiss lender released its annual report, which was scheduled to be released last Thursday, but was ultimately delayed by a call from the US Securities and Exchange Commission.
  • Following discussions with the US regulator, Credit Suisse announced its 2022 results on February 9, which showed a full-year net loss of 7.3 billion Swiss francs ($8 billion).
  • The bank’s shares fell another 5% in early trading in Europe on Tuesday to hit new all-time lows.

Credit Suisse Group logo in Davos, Switzerland on Monday, January 16, 2023.

Bloomberg | Bloomberg | Good pictures

Shares of Credit Suisse fell 5% in early trading on Tuesday, hitting a new all-time low, after the bank announced it had identified “material weaknesses” in its financial reporting processes for 2022 and 2021.

Shares pared losses slightly, but were down more than 4% by 9:30 a.m. London time.

The troubled Swiss lender made the observation in its annual report, which was initially scheduled for last Thursday but was delayed by a late call from the US Securities and Exchange Commission (SEC).

The SEC communication related to “Technical Evaluation of Previously Disclosed Amendments and Related Controls to Consolidated Statements of Cash Flows for the Years Ended December 31, 2020 and 2019.”

In Tuesday’s annual report, Credit Suisse revealed it had identified “certain material weaknesses in our internal control over financial reporting” for the years 2021 and 2022.

These issues relate to “a failure to design and maintain an effective risk assessment process to identify and analyze the risk of material misstatement” and various deficiencies in internal control and communication.

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Despite this, its financial statements for the years in question were “fair, in all material respects, [its] Consolidated Financial Position.”

Credit Suisse also said its net asset outflows had eased but “have not yet reversed”. The bank confirmed 2022 results announced on February 9 that showed a full-year net loss of 7.3 billion Swiss francs ($8 billion).

Liquidity risk

The bank revealed that late 2022 saw “significantly higher withdrawals of cash deposits, non-renewal of maturity deposits and net asset outflows that were significantly higher than the rates experienced in the third quarter of 2022”.

Credit Suisse saw customer withdrawals of more than 110 billion Swiss francs in the fourth quarter.

“These outflows have stabilized at very low levels, but have not changed as of the date of this report. These outflows have led to partial utilization of liquidity buffers at the group and legal entity level, and we have fallen below certain legal entity-level regulatory requirements.”

Credit Suisse acknowledged that these circumstances have “increased and may continue to increase” liquidity risks. The reduction in assets under management is expected to reduce net interest income and recurring commissions and fees, which will impact the bank’s capital position objectives.

“Failure to reverse these outflows and recover our assets under management and deposit could have a material adverse effect on our results of operations and financial condition,” the statement said.

Credit Suisse reiterated that it has taken “decisive action” on legacy problems as part of its major strategic overhaul, which is expected to result in further “significant” financial losses in 2023.

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The bank’s board collectively forecast a bonus for the first time in more than 15 years, while taking home fixed compensation of 32.2 million Swiss francs, the annual report confirmed.

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