Wednesday, July 24, 2024

Credit Suisse finds ‘material weaknesses’ in financial reporting, says outflows ‘not yet reversed’

  • The troubled Swiss lender released its annual report, which was scheduled to be released last Thursday, but was ultimately delayed by a call from the US Securities and Exchange Commission.
  • Following discussions with the US regulator, Credit Suisse announced its 2022 results on February 9, which showed a full-year net loss of 7.3 billion Swiss francs ($8 billion).

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

Bloomberg | Bloomberg | Good pictures

Credit Suisse on Tuesday announced that its net asset outflows had slowed but had “not yet reversed” and that it had identified “material weaknesses” in its financial reporting processes for 2022 and 2021.

The troubled Swiss lender released its planned annual report last Thursday, which was delayed by a late call from the US Securities and Exchange Commission (SEC).

That conversation related to the “technical assessment of previously disclosed revisions to the consolidated cash flow statements for the years ended December 31, 2020 and 2019 and related controls.”

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

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

Despite this, its financial statements for the years in question were “fair, in all material respects, [its] Consolidated Financial Position.”

Credit Suisse confirmed its 2022 results on February 9, which showed a full-year net loss of 7.3 billion Swiss francs ($8 billion).

Liquidity risk

The bank revealed that late 2022 saw “significantly higher withdrawals of cash deposits, non-renewal of maturity deposits and significantly higher net asset outflows than rates experienced in the third quarter of 2022”.

Credit Suisse saw customer withdrawals of more than 110 billion Swiss francs in the fourth quarter.

“These outflows have stabilized at very low levels, but have not yet changed as of the date of this report. These outflows have led to partial utilization of liquidity buffers at the group and legal entity level, and we have fallen below certain legal entity-level regulatory requirements.”

Credit Suisse acknowledged that these circumstances have “increased and may continue to increase” liquidity risks. The reduction in assets under management is expected to reduce net interest income and recurring commissions and fees, which will impact the bank’s capital position objectives.

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

Credit Suisse reiterated that it has taken “decisive action” on legacy problems as part of its ongoing massive strategic overhaul, which is expected to result in further “significant” financial losses in 2023.

The bank’s board collectively presented a bonus for the first time in more than 15 years, while taking home a fixed compensation of 32.2 million Swiss francs, the annual report confirmed.

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