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Credit Suisse's problems mount as lender warns on Q4 profit

Europe 25 January 2022 12:14
Credit Suisse's problems mount as lender warns on Q4 profit

Credit Suisse warned on Tuesday that it was likely to make a net loss in the fourth quarter as the scandal-hit lender flagged fresh legal costs and said business in its trading and wealth management divisions had slowed, Trend reports with reference to Reuters.

"Profit for the fourth quarter 2021 will be negatively impacted by litigation provisions of approximately 500 million Swiss francs, partly offset by gains on real estate sales of 225 million Swiss francs," the embattled lender said in a statement, adding the legal hits primarily related to settlement of legacy cases from its investment banking business.

Combined with other charges, it said this was expected to result in a reported pre-tax income or loss of "approximately breakeven" for the fourth quarter.

That would be before the deduction of a previously announced impairment charge of around 1.6 billion francs ($1.75 billion) on remaining investment banking-related goodwill on its books.

Shares were indicated 0.8% lower in pre-market trading activity .

Credit Suisse has been trying to turn the page on a slew of negative headlines and reform its risk management culture, an effort set back by the abrupt departure of the chairman brought in just nine months earlier to lead that transformation.

Switzerland's second-largest lender announced plans in November to rein in its investment bankers and plough money into looking after the fortunes of the world's rich as it tries to curb a freewheeling culture that has cost it billions in a string of scandals.

It said on Tuesday its investment bank would also be affected by a slowdown in transaction-based revenue.

"Combined with the reduction in our overall risk appetite, including our decision to substantially exit our prime services business, this has resulted in a loss for the fourth quarter 2021 in the Investment Bank division (before the goodwill impairment)," the lender said.

It said its core wealth management businesses, which it has been trying to shore up, would also be hit by a slowdown in transactions, resulting in "modestly negative" net new assets for those businesses.

"While we already expected lower transaction and trading revenues, the declines are likely larger than estimated. In addition, we might also have been somewhat optimistic on costs," Vontobel analysts wrote.

Credit Suisse attributed the slowdown to a reversion to more normal trading conditions after the bumper activity that prevailed for much of 2020 and 2021.

Major U.S. banks also flagged last week that the huge uptick in trading volumes during the pandemic was starting to moderate as expectations for a series of U.S. interest rate hikes and a rise in consumer spending was tempering investment rates.

Investors and analysts are also waiting to see how the bank's troubles, including two major scandals in March 2021, will impact Credit Suisse's client relationships.

On Tuesday, it said its asset management business, hit at the time by the collapse of $10 billion in funds linked to insolvent supply chain finance firm Greensill, had seen inflows in the last quarter of 2021, helping "more than offset" the outflows from wealth management. read more

For the first nine months of 2021, Credit Suisse reported a net profit of 435 million francs, down nearly 86% year on year. On a pre-tax basis, income stood at 1.064 billion francs.

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