on Thursday announced a dramatic strategy makeover while reporting a quarterly deficit that was significantly worse than analyst expectations.
In contrast to expert projections for a loss of 567.93 million Swiss francs, the troubled lender reported a third-quarter net loss of 4.034 billion Swiss francs ($4.09 billion). Additionally, the amount fell far short of the 434 million Swiss franc profit reported for the same quarter the previous year.
According to the bank, the loss was due to an impairment of 3.655 billion Swiss francs caused by the “reassessment of deferred tax assets as a result of the comprehensive strategic review.”
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In response to criticism from investors and in an effort to address underperformance in its investment bank and after a slew of litigation costs that have severely hurt earnings, the bank disclosed a significant reorganization of its operations. Ulrich Koerner, the new CEO, told CNBC on Thursday that it marked the start of “a transformation into a new Credit Suisse.”
#MarketNews @CreditSuisse (CSGN.S) lost 4 billion Swiss francs in the third quarter, badly missing the average estimate of 413 million francs in a consensus compiled by the embattled Swiss bank which also unveiled its new strategy.👇https://t.co/OMcDZ3Q49v
— Swissquote (in English) (@Swissquote) October 27, 2022
The bank promised to “radically restructure” its investment bank as part of its much-anticipated strategic change in order to considerably reduce its exposure to risk-weighted assets, which are used to calculate a bank’s capital requirements. By 2025, it also plans to reduce costs by 15%, or 2.5 billion Swiss francs.
By the end of 2024, the bank anticipates 2.9 billion Swiss francs in restructuring costs.
Credit Suisse will separate its investment bank into a separate company called CS First Boston as part of the transformation plan. Additionally, 4 billion Swiss francs will be raised in capital through the issuance of new shares and a rights offering, and a capital release unit will be established to close lower-return, non-strategic businesses.
Over the course of the restructuring, it is intended to reduce risk-weighted assets and leverage exposure by 40% each. The bank also set a goal to devote “nearly 80% of capital to Wealth Management, Swiss Bank, Asset Management and Markets by 2025.”
The bank will be “far more stable, will be sustainably profitable, will be considerably simpler in how it is set up, and for us, one of the most significant things was how did we reach to that solution?,” Koerner said in a statement to CNBC. We actually began with the needs of the customer, built everything around those needs, and arrived at what we’re proposing right now.
Credit Suisse results and strategy: Q3 2022 earnings and overhaul https://t.co/Dxp76haRu9
— Navroop Singh (@NavroopSingh_) October 27, 2022
After Thomas Gottstein’s resignation in July and the bank’s second-quarter net loss of 1.593 billion Swiss francs, which was considerably below analyst consensus estimates, Koerner assumed leadership. He described the strategy review that took place on Thursday as a “very decisive action agenda.”
We have all the ingredients we need, in my opinion, to go where we want to go, he continued, “first, a fundamental reform of the investment bank, second, a big decrease in costs, and third, a further strengthening of our capital basis.
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Sluggish investment banking revenues, losses from the closure of its operations in Russia, and legal costs associated with a number of historical compliance and risk management failings, most notably the Archegos hedge fund affair, have afflicted Credit Suisse over the past year.
Other financial highlights for the third quarter are as follows:
- In comparison to the same quarter previous year, the group’s revenue decreased to 3.804 billion Swiss francs from 5.437 billion.
- CET1 capital ratio, a gauge of bank soundness, was 12.6%, down from 13.5% in the previous quarter and 14.4% at the same time last year.
- Return on tangible equity decreased to -38.3% in the third quarter of 2021 from 4.5% in the second quarter and -15% in the first.
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