As a result of volatility affecting its investment bank, Credit Suisse warned on Wednesday of a possible group-wide loss in the second quarter, extending a losing streak dating back to 2021.
The second-largest bank in Switzerland has described 2022 as a “transition” year, during which it will attempt to turn the page on costly scandals that led to executive departures and a near-total reorganization of top management, as well as a restructuring to reduce risk-taking, especially in its investment bank.
The lender stated in a statement that the investment bank was likely to contribute to a group-wide loss in the second quarter as a result of the Russia-Ukraine conflict and significant monetary tightening, which had led to weak customer flows and clients reducing their borrowings, especially in the Asia-Pacific region.
“The impact of these conditions, along with sustained low levels of capital markets issuance and the widening of credit spreads, has affected the financial performance of this division in April and May and is anticipated to result in a loss for this division and the Group in the second quarter of 2022.”
It did not, however, provide a loss forecast for the second quarter.
Pre-market trade showed a decline of 3.3% for the opening price of the stock market.
Credit Suisse Chief Executive Officer Thomas Gottstein is scheduled to speak on Thursday at the Goldman Sachs (NYSE:GS) European Financials Conference, where heads of European banks will discuss the effects of the ongoing war, soaring energy prices, and a changing interest rate environment on their respective businesses.
The leaders of U.S. banks issued dire warnings about the global economy last week, with J.P.Morgan CEO Jamie Dimon predicting a “storm” and Citigroup (NYSE:Cboss )’s Jane Fraser predicting that Europe was more likely than the United States to enter a recession.
Major central banks, already planning rate hikes to combat inflation, are preparing a collective pullout from important financial markets in a first-ever bout of global quantitative tightening that is expected to restrict credit and add stress to a world economy that is already faltering.
In addition to the macroeconomic environment’s issues, Credit Suisse is dealing with its own restructuring and a series of failures that have undermined investor trust in the bank. In May, both Fitch and Standard & Poor’s lowered the country’s debt ratings.
Credit Suisse stated that the prolonged volatility in the market value of the bank’s 8.6 percent stake in Allfunds Group would also impact its second-quarter profitability.
The bank stated that it intended to pursue cost-cutting actions outlined in November as part of its reorganization “in order to maximize savings from 2023 onwards.”
It currently plans to operate with a group-wide Common Equity Tier 1 ratio, its main capital metric, of approximately 13.5% “in the foreseeable future,” below its 2024 aim of greater than 14% and its 2021 CET1 ratio of 14.4%.
“We are committed to the disciplined execution of our strategy, delivering on our regulatory remediation initiatives, and putting risk management at the heart of the bank,” the statement read.