Credit Suisse Group AG reported 61.2 billion Swiss francs (US$68.7 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 SF47.1 billion of net outflows in wealth management, traditionally the most prized business, and said that a SF1.3 billion impairment charge was mostly related to that unit.
The bank raised its profit warning for the business, saying it expects a “substantial” loss for the group as a whole this year.
Photo: AFP
Wealthy clients and retail depositors pulled billions of Swiss francs from Credit Suisse over several frantic days last month 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 that led the Swiss government to broker a rescue by its largest rival on fears that Credit Suisse would fall into bankruptcy.
The scale of the outflows and losses highlight the risks for UBS in an integration that the bank has said could take up to four years and be more difficult to conduct than many of the bank takeovers executed during the 2008 crisis.
While Credit Suisse said that outflows have moderated and not reversed, it also lost about SF6.9 billion of outflow at the Swiss unit, mostly in private client business, and a further SF11.6 billion in asset management.
The bank reported a pretax profit of SF12.8 million for the first quarter, boosted by the write-down to zero of SF15 billion of additional tier 1 capital notes as part of UBS’ 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 SF1.3 billion for the quarter.
Credit Suisse began its latest restructuring in October last year, including as many as 9,000 job cuts, as it sought to return to profitability. The continuation of asset exits and banker departures raises questions about the state of the wealth business that UBS is inheriting.
Credit Suisse yesterday said that recent developments have increased employee attrition.
To help stem an exodus of talent, UBS wealth head Iqbal Khan has appeared at public meetings 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’ concern that rivals could use the drama to poach personnel and clients.
Credit Suisse had already lost about SF110 billion of client assets in the fourth quarter of last year, after a social media firestorm questioning the bank’s financial stability set off a rush for the exits.
Analysts at Citigroup Inc estimated before yesterday’s announcement that Credit Suisse could lose another SF110 billion following its merger with UBS, or about one-fifth of its client assets.
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