Credit Suisse suffered $69bn in outflows during first-quarter crisis

Credit Suisse suffered SFr61.2bn ($68.6bn) of outflows in the first quarter as clients fled the stricken bank, exposing the scale of the task for UBS after taking over its Swiss rival.

The client exodus was most acute in the days before Swiss regulators orchestrated the rescue by UBS last month, Credit Suisse said on Monday, adding that while outflows have stabilised, they have not reversed.

The revelations of the scale at which customers fled the bank are the first since the takeover deal was struck, underlining the damage inflicted on the business that forced Swiss regulators to step in.

Credit Suisse’s flagship wealth management unit lost 9 per cent of assets in the first quarter, a haemorrhaging that will cut the fees it generates and “likely lead to a substantial loss in wealth management” in the second quarter, Credit Suisse said as it released first-quarter results.

The $3.25bn takeover by UBS is the first time two global systemically important financial institutions have been brought together and is the most significant banking deal since the financial crisis 15 years ago.

The deal brings huge integration risks for UBS. Analysts have forecast that both banks could lose customers, especially wealthy ones who have accounts at both lenders and now want to diversify their risk.

“The magnitude of losses and outflows is alarming,” said Thomas Hallett, an analyst at Keefe, Bruyette & Woods, on Monday.

“There is more to come. Simply put, even if UBS is able to take out SFr8bn of costs by 2027, the revenue trajectory is so damaged that the deal could well remain a drag on UBS operating results unless a deeper restructuring plan is announced.”

Credit Suisse reported an adjusted SFr1.3bn pre-tax loss for the quarter. It reported net income of SFr12.4bn for the quarter, a figure flattered by a SFr15bn accounting gain stemming from the controversial wipeout of some Credit Suisse bondholders as part of the rescue.

Holders of additional tier one capital notes — a debt instrument that can convert into equity — that have been hit have filed a lawsuit against Switzerland’s banking regulator, Finma, over the decision. It is expected to be the first of several claims over the next few years.

The move has temporarily boosted Credit Suisse’s common equity tier one ratio — an indicator of its financial resilience — from 14.1 per cent to 20.3 per cent.

“In light of the merger announcement, the adverse revenue impact from the previously disclosed exit from non-core businesses and exposures, restructuring charges and funding costs, Credit Suisse would also expect the investment bank and the group to report a substantial loss before taxes in [the second quarter] and 2023,” the bank said.

Credit Suisse also confirmed it had terminated its $175mn acquisition of M Klein & Co, the advisory business run by the bank’s former director Michael Klein. The deal had been structured as part of a plan for Credit Suisse to spin off much of its investment bank under the First Boston brand and be run by Klein.

Separately, UBS said on Monday that Christian Bluhm, its chief risk officer who had announced he was standing down to become a full-time photographer, would instead stay in the role “for the foreseeable future” to help with the integration of Credit Suisse.

UBS reports its first-quarter results on Tuesday morning.