Tens of billions were withdrawn from Credit Suisse in the first three months of 2023, the bank's earnings report showed Monday, providing clues to the towering challenges ahead as UBS prepares an emergency takeover.
Switzerland's long-time second-largest bank saw 61.2 billion Swiss francs ($68.6 billion) withdrawn in the first quarter alone, it said Monday in what is likely its final quarterly report before it is swallowed by its larger domestic rival, UBS.
The bank also reported deceptively bloated net profits for the quarter, after its high-risk debts were wiped out in the mega-merger deal, but warned of "substantial" losses to come.
Investors had been eagerly awaiting the results as they seek clues to the magnitude of the challenges facing UBS, Switzerland's largest bank after it was strongarmed last month by Swiss authorities into the shotgun marriage.
The results seemed to be greeted with some optimism.
In early afternoon trading, Credit Suisse's shares rose nearly two per cent to 0.81 Swiss francs a piece and UBS were up 1.6 per cent at 18.35 francs a share, as the Swiss stock exchange's main SMI index rose 0.14 per cent.
But Vontobel analyst Andreas Venditti warned in a research note that Credit Suisse's report "reveals the bad shape the firm is in".
"UBS undoubtedly faces a major (and urgent) task in deeply restructuring its former competitor."
Credit Suisse said the "significant net asset outflows" were particularly heavy in the second half of March, as it was engulfed by panic in the days surrounding the hastily arranged takeover.
"These outflows have moderated but have not yet reversed as of April 24, 2023," the bank said in its earnings statement.
Analysts with the Zurich Cantonal Bank (ZKB) stressed that Credit Suisse's outflows for the quarter were "less than feared".
But they come after the bank already saw 110.5 billion francs in outflows in the fourth quarter of 2022.
Venditti pointed out that over the past six months, Credit Suisse's wealth management division alone had seen 140 billion francs in net new money outflows.
The bank meanwhile said it saw its net profit swell in the first quarter to 12.4 billion francs, up from a significant loss a year earlier.
But that was largely attributed to holders of high-risk Credit Suisse debt being wiped out in the emergency takeover deal.
Swiss authorities required that close to 16 billion Swiss francs ($17.9 billion) in so-called additional tier 1 (AT1) bonds be rendered worthless before Switzerland's two biggest banks united.
The order by the Swiss Financial Market Supervisory Authority (FINMA) infuriated bondholders, and a number of them have begun launching legal action against the regulator.
Credit Suisse said its quarterly results were also boosted by the 700-million-Swiss-franc sale of a significant part of its Securitized Products Group to Apollo Global Management.
But despite this, on an adjusted basis, the bank said it nonetheless suffered a pre-tax loss for the quarter of 1.3 billion Swiss francs.
The bank, which last October launched a vast restructuring plan including carving out its investment arm, said that the unit had suffered an adjusted pre-tax loss of 337 million in the first quarter.
And it warned that "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", it expected to see "substantial" pre-tax losses in its investment bank unit and overall in the second quarter and full year of 2023.
Credit Suisse also said Monday that it had scrapped a deal to acquire the investment advisory business of M. Klein & Company and fold it into the First Boston brand, which it had planned to resurrect as part of its investment bank overhaul.
The bank said the sides had "mutually agreed to terminate" the $175-million acquisition "considering Credit Suisse's recently announced merger with UBS."
Credit Suisse suffered a string of scandals over the past several years, and after the collapse of three US regional banks unleashed market panic, it was left looking like the weakest link in the chain.
Over the course of a nerve-wracking weekend, Swiss authorities organised an emergency rescue, pressuring UBS to agree to a $3.25-billion mega-merger on the evening of March 19.
Justifying the move to parliament earlier this month, Swiss President Alain Berset said that "without intervention, Credit Suisse would have found itself, in all likelihood, in default on March 20 or 21".
In 2022, Credit Suisse suffered a 7.3-billion-franc loss, in stark contrast to the $7.6 billion profit raked in by UBS last year.
UBS is due to publish its first-quarter results on Tuesday.