Credit Suisse has posted a net loss in Q1 2021 after taking a $4.7bn (CHF4.4bn) hit from exposure to insolvent US-based hedge fund Archegos Capital.
This outweighed strong growth across wealth management and investment banking units.
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Highlights
The Swiss investment bank’s net loss attributable to shareholders was CHF252m in Q1 2021 versus a profit of CHF1.31bn in the Q1 2020.
Its pre-tax loss for the quarter to March 2021 stood at CHF757m, compared to a profit of CHF1.2bn in the same quarter of 2020.
On an adjusted basis, pre-tax income increased to CHF3.6bn from CHF946m over the period.
Reported net revenue grew, surging 31% to CHF7.57bn from CHF5.78bn. Quarterly wealth management-related revenues and investment bank revenues were both $3.9bn, growing 3% and 80%, respectively.
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By GlobalDataInvestment Bank benefitted from Fixed Income and Equity Sales & Trading as well as Capital Markets & Advisory.
Adjusted revenues at the group jumped 35% year-on-year to CHF7.43bn.
Its CET1 ratio was 12.2% at the end of March 2021, compared to 12.1% a year ago.
Operating expenses dipped 2% to CHF3.9bn, driven by reduced compensation expenses.
Credit Suisse’s net new assets (NNA) were CHF28.4bn in 1Q21, with Swiss Universal Bank (SUB) Private Clients contributing CHF2.2bn, International Wealth Management (IWM) Private Banking accounting for CHF7.2bn and APAC contributing $5.4bn.
A year ago, the banking group reported NNA of CH5.8bn.
Credit Suisse’s assets under Management (AuM) reached CHF1.6trn at the end of March 2021, compared to CHF1.5trn in the previous quarter.
Credit Suisse Group CEO Thomas Gottstein called the loss due to the charge “unacceptable” and said that the bank is taking a series of measures to address the issue.
Divisional performance
In SUB, reported net revenues remained stable at CHF1.45bn.
The division’s reported pre-tax income was CHF665m in the three-month-period ended 31 March 2021, 25% higher than a year ago.
NNA of CHF6.1bn was drive by positive contributions from both private clients as well as corporate & institutional clients.
IWM Private Banking’s reported pre-tax income increased 18% year-on-year to CHF408m. The unit’s reported net revenues dropped 4% to CHF987m from CHF1.03bn.
NNA of CHF7.2bn was driven by emerging markets and Western Europe.
IWM Asset Management’s NNA of CHF10.3bn was driven by equities and index solutions.
Its reported net revenues dropped 13% to CHF386m while pre-tax income slumped 30% to CHF115m.
The APAC arm’s reported net revenues increased 35% year-on-year to CHF1.17bn while pre-tax income climbed 154% to CHF577m. NNA was driven by inflows from Greater China.
Gottstein noted: “Among other decisive actions, we have made changes in our senior business and control functions; we have enhanced our risk review across the bank; we have launched independent investigations into these matters by external advisers, supervised by a special committee of the Board; and we have taken several capital-related actions.
“We will work to ensure Credit Suisse emerges stronger. However, it is also important to recognise that our underlying 1Q21 financial performance, across all divisions, was strong, supported by solid results in Switzerland, and strong growth in APAC and investment banking.”
Background
Credit Suisse first warned of its loss from Archegos collapse earlier this month.
As a result, bonuses for top bankers were nixed while the CHF1.5bn share buyback programme was halted.
The bank also decided to lower its dividend by two-thirds to CHF0.10 per share.
The bank has made several leadership changes after the Archegos hit.
This includes the departures of its prime-brokerage co-heads John Dabbs and Ryan Nelson.
This was preceded by the exit of its investment bank CEO Brian Chin and chief risk and compliance officer Lara Warner.
The Archegos fallout adds to the woes of Credit Suisse, which is already reeling from exposure to now-insolvent Greensill Capital.
The bank was a key funding source for the British financial services firm. It was associated with selling around $10bn worth of Greensill-created securities through its asset management unit.
The bank froze all funds linked with Greensill after the securities lost insurance coverage. It also began an internal probe as it came under the scanner after the Greensill collapse.
