Swiss credit announced on Wednesday that CEO Thomas Gottstein would step down as the bank announced a massive second-quarter loss, as poor performance by investment banks and rising litigation provisions weighed on earnings.
The troubled Swiss bank posted a net loss of 1.593 billion Swiss francs ($1.66 billion), well below analysts’ consensus expectations for a loss of 398.16 million Swiss francs.
In a statement Wednesday, Gottstein said the second quarter results were “disappointing” and the bank’s performance was “significantly impacted by a number of external factors, including geopolitical, macroeconomic and market headwinds.”
“The urgency for decisive action is clear and a comprehensive overhaul to strengthen our pivot to the Wealth Management, Swiss Bank and Asset Management businesses, supported by a fundamental transformation of our Investment Bank, is underway,” he said. -he declares.
“Today marks a change of direction for Credit Suisse. It has been an absolute privilege and honor to serve Credit Suisse for the past 23 years. My passion from day one has been to deliver world-class service. to our customers.”
Gottstein, who took the reins at the start of 2020 following the resignation of his predecessor Tidjane Thiam after a spy scandalwill be replaced by Ulrich Koerner, previously CEO of the bank’s Asset Management division.
Credit Suisse Chairman Axel Lehmann in May gave his full support to Gottstein and denied reports that the board had considered replacing him. He told CNBC on Wednesday that Gottstein was “a great guy” who did a “great job,” but that two key changes had taken place since that conversation at the World Economic Forum in Davos.
“First, we embarked on a thorough review of our strategy and announced today that we were accelerating our transformation, and Thomas decided that at this time, also for personal reasons, it was worth better make a change,” Lehmann said, adding that Gottstein had “contributed” to shaping the strategic review.
“He’s all behind it, but at a certain point you have to have all the energy, and I think at that point he and I thought it was better to change and bring in someone like Ulrich. Koerner, who I think has a great track record of operational transformation.”
Koerner, a Credit Suisse veteran, will take over as CEO effective immediately, and Lehmann said that on the one hand, his appointment represents a “continuation” of transformation efforts that began under Gottstein.
“[Koerner] knows the bank well. He was building companies, he was COO at big organizations, so he’s got a really front-to-back approach, and I call it, a back-to-front approach,” Lehmann said.
He will take over with immediate effect and he will drive the transformation that we will accelerate.”
The investment bank was hit by significantly lower capital markets issuance activity and reduced client activity, Credit Suisse said in a summary on Wednesday, acknowledging that the division’s positioning “was not designed to take advantage of volatile market conditions” and its strengths, such as capital markets, were “significantly affected”.
The 29% year-on-year decline in the group’s net revenues is mainly explained by a 43% drop in investment banking revenues and a 34% drop in wealth management revenues, while management revenues of assets also fell by 25%.
“In investment banking, although we have a strong pipeline of deals, these could prove difficult to execute in the current market environment,” Credit Suisse warned in its report.
“So far, trading in 3Q22 has been marked by continued weakness in client activity, exacerbating normal seasonal declines, and we expect this division to post another loss this quarter.”
Operating expenses were up 10% year-on-year and included significant litigation provisions of 434 million Swiss francs related to multiple legal matters.
Wednesday’s dismal earnings report follows a net loss of 273 million Swiss francs in the first quarter, as Russia-related losses and continued legal costs stemming from the Archegos Hedge Fund Scandal reduces the bank’s income.
In the second quarter of 2021, Credit Suisse’s net profit reached 253 million Swiss francs, a drop of 78% compared to the previous year, after suffering a loss of 4.4 billion francs following the collapse of ‘Archegos.
Credit Suisse warned in early June that it was likely to post a loss for the quarter, citing deteriorating geopolitics, aggressive monetary policy tightening by central banks and the unwinding of Covid-19-era stimulus measures.
The bank said at the time that this confluence of adverse conditions had caused “continued increased market volatility, low customer flows and continued customer deleveraging, particularly in APAC.”
Despite the difficult context, Credit Suisse engaged at an Investor Deep Dive event in late June to move forward with its risk and compliance overhaul, which was launched following a series of scandals and aims to reform its risk, compliance, technology and operations functions , as well as the wealth management activity.
- The group’s turnover reached 3.645 billion Swiss francs, against 5.103 billion for the same period last year.
- The CET1 capital ratio, a measure of bank solvency, was 13.5%, down from 13.7% in the same period last year.
The bank also faces a potential $600 million hit by Bermuda court case concerning its local branch of life insurance, while the scandals inherited from the past continue to hammer its balance sheet.