Credit Suisse reports pre-tax income of CHF 12.8 bn with a CET1 ratio of 20.3% in 1Q23; results reflect write-down of CHF 15 bn AT1 capital notes.
Summary of 1Q23 performance
Credit Suisse’s performance in 1Q23 was mainly impacted by actions leading up to and stemming from the planned merger between Credit Suisse Group AG (Credit Suisse) and UBS Group AG (UBS), which was announced on March 19, 2023, and by significant deposit and net asset outflows.
Credit Suisse will work closely with UBS to ensure that the transaction is completed in a timely manner. The consummation of the merger remains subject to customary closing conditions.
Credit Suisse reported pre-tax income of CHF 12.8 bn in 1Q23. The 1Q23 result primarily reflected the write-down to zero of CHF 15 bn of Additional Tier 1 (AT1) capital notes as ordered by the Swiss Financial Market Supervisory Authority FINMA (FINMA) in light of the aforementioned planned merger. Reported pre-tax income was further affected by a CHF 0.7 bn gain from the sale of a significant part of the Securitized Products Group (SPG) (Apollo transaction) to entities and funds managed by affiliates of Apollo Global Management (collectively, Apollo), offset by a goodwill impairment charge of CHF 1.3 bn almost entirely recognized in Wealth Management (WM) and CHF 0.3 bn in restructuring expenses. Credit Suisse recorded an adjusted* pre-tax loss of CHF 1.3 bn for the quarter.
The Group’s common equity tier 1 ratio (CET1) increased to 20.3% as of the end of 1Q23, up from 14.1% at the end of 4Q22. The increase in CET1 capital was mainly driven by the write-down of the AT1 capital notes as ordered by FINMA.
Credit Suisse experienced significant net asset outflows, in particular in the second half of March 2023. These outflows have moderated but have not yet reversed as of April 24, 2023. For 1Q23, Credit Suisse reported net asset outflows of CHF 61.2 bn. Deposit outflows represented 57% of Wealth Management (WM) and Swiss Bank (SB) net asset outflows in 1Q23.
As of the end of 1Q23, assets under management (AuM) of CHF 1.3 trn decreased by CHF 41 bn compared to the end of 4Q22.
At the Group level, net asset outflows in 1Q23 were CHF 61.2 bn or 5% of AuM as of the end of 4Q22, in particular following net asset outflows in the second half of March 2023 across all businesses.
In WM, net asset outflows in 1Q23 represented 9% of AuM reported as of the end of 4Q22.
In the SB, net asset outflows in 1Q23 represented 1% of AuM reported as of the end of 4Q22.
In Asset Management (AM), net asset outflows in 1Q23 represented 3% of AuM reported as of the end of 4Q22.
In the second half of March 2023, Credit Suisse experienced significant withdrawals of cash deposits as well as non-renewal of maturing time deposits. Customer deposits declined by CHF 67 bn in 1Q23. These outflows, which were most acute in the days immediately preceding and following the announcement of the merger, stabilized to much lower levels, but had not yet reversed as of April 24, 2023.
The Swiss National Bank (SNB) granted Credit Suisse access to significant credit facilities that provide substantial liquidity support to the bank, a portion of which are supported by default guarantees provided by the Swiss government. As of March 31, 2023, the net amount of borrowings under these facilities amounted to CHF 108 bn after repayments of CHF 60 bn in the quarter, with further repayments of CHF 10 bn as of April 24, 2023.
The Group’s three-month average daily Liquidity Coverage Ratio (LCR) was 178% as of the end of 1Q23, improved from lower levels earlier in the quarter after benefitting from the liquidity facilities from the SNB.
Prior to the significantly increased outflows, on March 14, 2023, the quarter to date daily average LCR was approximately 153%, and improved from the three-month average daily LCR of 144% at the end of 2022.
Compared to 4Q22, net revenues were significantly higher, primarily reflecting higher net revenues in the Corporate Center (CC), the Capital Release Unit (CRU) and in the Investment Bank (IB), partially offset by lower net revenues in WM, AM and SB. The increase in the CC was primarily driven by treasury results, which reflected the write-down of the AT1 capital notes. The increase in the CRU mainly reflected the gain on the Apollo transaction. Net revenues in the IB increased compared to low levels in 4Q22 and included gains on increased buyback activity principally in the structured notes portfolio across equities and fixed income at prices reflecting significantly wider credit spreads. The decrease in WM mainly reflected lower net interest income and lower other revenues which reflected a gain on the sale of real estate in 4Q22. The decrease in AM was driven by decreased investment and partnership income, partially offset by higher performance and transaction revenues. The decrease in the SB was primarily driven by lower other revenues and lower net interest income.
Compared to 4Q22, total operating expenses increased 30% in 1Q23, mainly reflecting the goodwill impairment charge and increases in compensation and benefits, partially offset by lower general and administrative expenses and lower restructuring expenses. Compensation and benefits increased 16%, including the acceleration of deferred compensation expenses due to the cancellation of outstanding deferred compensation awards. General and administrative expenses decreased 19%, primarily reflecting lower litigation expenses. Adjusted* total operating expenses were stable compared to 4Q22.
Following a review of the Group’s financial plans to reflect the deposit and AuM outflows in 1Q23, the Group concluded that the estimated fair value of the WM reporting unit was below its related carrying value and as a result a goodwill impairment charge of CHF 1.3 bn was recorded for the quarter, resulting in a goodwill balance of zero for that reporting unit. The fair value of the remaining reporting units with goodwill (SB and AM) exceeded their related carrying values and no further impairments were necessary as of March 31, 2023.
The reduction in AuM and deposits in 1Q23 is expected to lead to reduced net interest income and recurring commissions and fees. In particular, this will likely lead to a substantial loss in WM in 2Q23.
In light of the merger announcement, the adverse revenue impact from the previously disclosed exit from non-core businesses and exposures, restructuring charges and funding costs, Credit Suisse would also expect the IB and the Group to report a substantial loss before taxes in 2Q23 and 2023. The Group’s actual results will depend on a number of factors, including the performance of the IB and WM divisions; deposit or net asset flows; the continued exit of non-core positions; goodwill, software and other impairments; litigation; regulatory actions; credit spreads and related funding costs; the usage and availability of the SNB liquidity facilities; the impact of continued voluntary and involuntary employee attrition and the outcome of certain other items, including potential real estate sales. Credit Suisse is taking proactive measures to protect its client franchise, manage risks and facilitate operational stability.
Strategy Execution Update
The bank continued to execute on certain strategic actions: SPG: Achieved approximately USD 48 bn reduction in the asset equivalent exposures of SPG and related financing businesses since 3Q22, or >85% of targeted reduction of approximately USD 55 bn.
Non-Core Unit (NCU): Reduced Risk Weighted Assets (RWA) and leverage exposure by approximately USD 4 bn and approximately USD 14 bn1 , respectively since 4Q22.
Cost actions: Progress on cost transformation program with adjusted* operating expenses 6% lower YoY in 1Q23 due to lower general and administrative expenses and compensation and benefits. Achieved reduction in number of employees of approximately 9% since 3Q222 .
CS First Boston: Credit Suisse Group AG, and M. Klein & Co LLC have mutually agreed to terminate the acquisition of The Klein Group, LLC (i.e., the investment banking business of M. Klein & Co. LLC) by Credit Suisse considering Credit Suisse’s recently announced merger with UBS Group AG.
Effective January 1, 2023, Credit Suisse includes the results of WM, SB, AM, IB, CC and CRU.
The full results can be read here.
Source: Credit Suisse
