Zurich: The Credit Suisse Group AG reported 61.2 billion francs ($69 billion) of outflows in the first quarter and took a large writedown at its wealth management unit, underscoring the challenge for UBS Group AG in retaining key clients and assets after the emergency takeover.
The Swiss lender reported 47.1 billion francs of net outflows in wealth management, traditionally the most prized business, and said a 1.3 billion franc impairment charge was mostly related to that unit. The bank upped its profit warning for the business, saying it expects a 'substantial' loss there and also for the group as whole this year.
Wealthy clients and retail depositors pulled billions from Credit Suisse over several frantic days in March after its anchor Saudi shareholder said that it would not invest more in the company. That was the second crisis of confidence in the bank within months, and one which ultimately led the Swiss government to broker its rescue by its largest rival on fears that Credit Suisse would fall into bankruptcy.
Hurting with private client outflows
The scale of the outflows and losses highlight the risks for UBS in an integration that the bank has said may take up to four years and Chairman Colm Kelleher sees as more difficult than many of the bank takeovers executed during the 2008 crisis. While Credit Suisse said that outflows have moderated and not yet reversed, it also lost about 6.9 billion of outflows at the Swiss unit, mostly at the private clients business, and a further 11.6 billion francs in asset management.
Credit Suisse had started its latest restructuring in October, including as many as 9,000 job cuts, as it sought to return to profitability. The continuation of asset exits, and banker departures, now raises questions about the state of the wealth business that UBS will inherit. (Credit Suisse on Monday warned that the recent developments have already increased employee attrition.)
A talent drain
To help stem an exodus of talent, UBS wealth head Iqbal Khan has appeared in townhalls alongside his Credit Suisse counterpart to tell key staff that the new owner would offer incentives and retention packages. Khan formerly ran the international wealth business at Credit Suisse and his intervention signals UBS's concern that rivals will use the drama to poach personnel and clients.
Credit Suisse had already lost about 110 billion francs of assets in the fourth quarter, after a social media firestorm questioning the bank's financial stability set off a rush for the exits. Analysts at Citigroup Inc estimated before Monday's announcement that Credit Suisse would probably lose another 110 billion following its merger with UBS, or about a fifth of its assets.
The bank reported a pre-tax profit of 12.8 million Swiss francs for the first quarter, boosted by the write down to zero of 15 billion francs of additional tier 1 capital notes as part of UBS's acquisition of Credit Suisse. That move proved hugely contentious, with many investors exploring legal options even after the Swiss government maintained the move was within its rights under the securities' contract. Without the adjustment, Credit Suisse posted a loss of 1.3 billion francs for the quarter.
By the end of the first quarter, Credit Suisse had borrowed a total of 108 billion francs from the Swiss National Bank, after repaying 60 billion francs of borrowings, to support its liquidity levels. It repaid another 10 billion francs in April, after the quarter closed.