Credit Suisse turnaround faces material risk: Fitch

The latest hefty losses at Credit Suisse highlight the challenges the bank is facing as it tries to turn around its business, says Fitch Ratings.

Credit Suisse reported a pre-tax loss of 1.3 billion Swiss francs (CHF) for its fourth quarter, and a CHF3.3 billion loss for 2022, amid a 33% drop in overall revenue and losses in three of its four major divisions — wealth management, asset management and investment banking.

Its core banking division also saw its profits drop significantly, Fitch noted.

In the fourth quarter, deposits dropped by 37% and net assets were down 8%, as “Credit Suisse experienced very substantial outflows from its wealth management division and the Swiss Bank,” it said.

While some of the decline in revenue was expected due to the bank’s ongoing restructuring efforts — such as disposing of its securitized products division and other non-core assets — the large losses also signal the scale of the challenge facing the firm as it seeks a return to profitability, the rating agency said.

“Notwithstanding this incremental progress, the negative outlook on Credit Suisse’s ratings reflect Fitch’s view that the bank still faces material execution risk during the restructuring, and maintaining adequate capitalization throughout will be key for the ratings,” it said in a new report.

Credit Suisse improved its common equity Tier 1 capital ratio in the fourth quarter, amid a reduction in risk-weighted assets and an increase in capital.

However, Fitch said that it expects the bank’s capital ratio to decrease in the coming year “due to further losses arising from restructuring costs in 2023, and underlying operating profitability will remain weak.”

Given its negative outlook, Fitch said that Credit Suisse’s ratings would come under pressure “if the wealth management franchise suffers lasting damage, for example, if assets under management do not sustainably recover to support the bank’s franchise, or if the restructuring plan stalls or financial performance weakens further.”

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.