March 29, 2023

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Credit Suisse shares fell 5% as “material weaknesses” appeared in the financial reports

  • The beleaguered Swiss lender published its annual report, which was due last Thursday, but was ultimately delayed by a call from the US Securities and Exchange Commission.
  • After concluding discussions with the US regulator, Credit Suisse confirmed its results for 2022 announced on February 9, which showed a net loss for the full year of CHF 7.3 billion (US$8 billion).
  • Shares of the bank fell another 5% to an all-time low during early trade in Europe on Tuesday.

The Credit Suisse Group logo in Davos, Switzerland, on Monday, January 16, 2023.

bloomberg | bloomberg | Getty Images

Credit Suisse shares fell 5% in early trading Tuesday to a new all-time low, after the bank announced that it had found “material weaknesses” in its financial reporting processes for 2022 and 2021.

Shares have trimmed losses slightly since then, but were still down more than 4% by 9:30 a.m. London time.

The beleaguered Swiss lender made the note in its annual report, which was initially due last Thursday but was delayed by a late call from the US Securities and Exchange Commission (SEC).

The SEC conversation relates to a “technical assessment of previously disclosed revisions to consolidated cash flow statements for the years ended December 31, 2020 and 2019, as well as related controls.”

In its annual report Tuesday, Credit Suisse revealed that it had identified “certain material weaknesses in our internal control over financial reporting” for 2021 and 2022.

These issues relate to “failure to design and maintain an effective risk assessment process to identify and analyze risks of material misstatement” and various deficiencies in internal control and communications.

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Despite this, the bank said it was able to confirm that its financial statements over the years in question are “fairly present, in all material respects, [its] consolidated financial position.

Credit Suisse also said its net asset outflows had declined but “not yet”. The bank confirmed its 2022 results announced on February 9, which showed a net loss for the full year of CHF7.3 billion ($8 billion).

Liquidity risk

In late 2022, the bank revealed that it was seeing “significantly higher withdrawals of cash deposits, non-renewal of term deposits, and net asset flows at levels that significantly exceeded rates incurred in the third quarter of 2022.”

Credit Suisse saw customer withdrawals of more than CHF 110 billion in the fourth quarter, as a series of scandals, old pitfalls and compliance failures continued to plague it.

“These outflows have stabilized to much lower levels but have not yet reversed as of the date of this report. These outflows have partially used up liquidity reserves at the group and legal entity level, and we have fallen below some of the regulatory requirements at the legal entity level.”

Credit Suisse acknowledged that these conditions had “exacerbated and may continue to exacerbate” liquidity risks. The decrease in assets under management is expected to result in lower net interest income, commissions and recurring fees, which in turn will affect the Bank’s capital position objectives.

“Failure to reverse these outflows and recover our assets under management and deposits could have a material adverse effect on our results of operations and financial condition,” the report said.

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Credit Suisse has confirmed that it has taken “decisive action” on longstanding issues as part of the ongoing massive strategic overhaul, which is expected to lead to further “significant” financial losses in 2023.

The Bank’s Board of Directors’ annual report collectively confirmed the award of a bonus for the first time in over 15 years, with a total fixed compensation of CHF 32.2 million.