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Credit Suisse sheds $100bn ahead of UBS takeover

  •  
By Charbel Kadib
  •  
4 minute read

The Swiss bank recorded a second consecutive quarterly contraction in net fund flows before its “emergency” takeover by competitor UBS.

Credit Suisse has published its financial results for the first quarter of the 2023 financial year (1Q23), reporting a 19 per cent decline in total assets under management (AUM), from CHF 1.5 billion (AU$2.6 billion) to CHF 1.2 billion (AU$2.1 billion).

The contraction was underpinned by a surge in outflows for the second consecutive quarter — totalling CHF 61.2 billion (AU$103 billion) in 1Q23 following a CHF 110.5 billion (AU$185.6 billion) spike in 1Q22.

According to the global investment bank, the bulk of outflows were recorded over the second half of March but have “not yet reversed”. 

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Adding to the bank’s woes was a spike in withdrawals of cash deposits and non-renewals of maturing time deposits. 

Overall, customer deposits declined by approximately CHF 67 billion (AU$113.2 billion) in 1Q23. 

The surge in outflows and deposit withdrawals contributed to a pre-tax loss of CHF 1.3 billion (AU$2.2 billion), down from a pre-tax income of CHF 300 million (AU$504 million) in the previous corresponding period (1Q22).

This result excluded the balance sheet implications of the Swiss Financial Market Supervisory Authority’s (FINMA) write-off of CHF 16 billion (AU$25.6 billion) in Additional Tier 1 (AT 1) capital notes issued to support competitor UBS’ AU$4.8 billion acquisition

The write-off aimed to bolster the liquidity position of the combined entity, used to service costs associated with the transition. 

When including funds generated by the write-off, Credit Suisse’s pre-tax income totalled approximately CHF 12.7 billion (AU$21.4 billion). 

Credit Suisse’s takeover by UBS remains subject to customary closing conditions but has already been greenlit by the Swiss Federal Department of Finance (FDF), FINMA, and the Swiss National Bank (SNB). 

“Credit Suisse will work closely with UBS to ensure that the transaction is completed in a timely manner,” the bank told shareholders in its latest update. 

Shareholders have been offered one UBS share for every 22.48 Credit Suisse shares, representing approximately CHF 0.76 (AU$1.22) per share for a total consideration of CHF 3 billion (AU$4.8 billion).

Once finalised, the acquisition would involve “managing down” Credit Suisse’s investment bank while reinforcing UBS’ global investment strategy, with the combined investment business to account for approximately 25 per cent of group risk-weighted assets.

Together, the businesses are tipped to manage over AU$5 trillion in invested assets across global markets, of which, approximately AU$2.2 trillion would be invested in Europe. The combined business is projected to generate an annual run-rate of cost reductions exceeding AU$11.9 billion by 2027.

The takeover came amid ongoing concerns over the strength of Credit Suisse’s balance sheet, which was undermined by “significantly higher withdrawals” of cash deposits and non-renewal of maturing time deposits over the fourth quarter of 2022.

Investor sentiment later worsened off the back of three banking collapses in the United States, attributed to poor capital management exposed by aggressive monetary policy tightening.

Credit Suisse moved to withdraw three key proposals to the 2023 annual general meeting (AGM) of shareholders in lieu of recent developments.  

The proposals, first announced on 14 March, included discharging the members of the board of directors and executive board for the 2022 financial year (Item 2).

The bank also withdrew a one-time deferred share-based transformation award (Item 8.2.2) for its executive board, which was linked to the implementation of Credit Suisse’s strategic objectives.

Moreover, as per the conditions of liquidity assistance extended to Credit Suisse by Swiss regulators, the bank was not permitted to resolve on and distribute a dividend for the 2022 financial year.

As such, Credit Suisse withheld a dividend of CHF 0.05 (AU$0.08) per share. 

Credit Suisse sheds $100bn ahead of UBS takeover

The Swiss bank recorded a second consecutive quarterly contraction in net fund flows before its “emergency” takeover by competitor UBS.

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