Credit Suisse Post Heavy Q3 Losses, "Radical Restructure" Needed

Credit Suisse (NYSE:CS), a Swiss banking giant, announced a significant quarterly loss of $4.09 billion on Thursday, exceeding the analytical forecasts. In addition, it has presented a major strategic overhaul, including raising fresh capital of $4 billion and slashing 9,000 jobs.

Analysts had expected the Swiss bank's loss to reach 567.93 million Swiss francs. However, it turned out to be seven times higher (4.034 billion Swiss francs). The figure was also below the 434 million Swiss francs profit the institution had made in the same quarter a year earlier.

Due to intense pressure from investors, Credit Suisse announced a change in the bank's existing strategy and a 'transformation plan'. Among other things, it includes addressing poor performance in the investment banking division and raising additional capital after a series of financial penalties, settlements and scandals from years of paying elevated litigation costs.

Under the latest plans, Credit Suisse wants to raise 4 billion Swiss francs in new capital through a share issue, create a new entity called CS First Boston by splitting off the current investment bank and lay off up to 9,000 current employees. This follows a strategy unveiled through 2025 to reduce the international staff from 52,000 to 43,000.

"The third quarter, and more broadly 2022 so far, have been significantly impacted by the continued challenging market and macroeconomic conditions, leading to a weaker performance for our Investment Bank in particular. Our recent Group level performance has been disappointing for our stakeholders. From today, we are taking a series of decisive actions to re-focus Credit Suisse around the needs of our clients and stakeholders," Ulrich Körner, the Chief Executive Officer of Credit Suisse Group AG, said in a statement.

"Our new, integrated model will be focused on Wealth Management, the Swiss Bank, as well as Asset Management, and we will radically restructure the Investment Bank, strengthen capital and accelerate our cost transformation. We believe these actions will lead Credit Suisse to more stable performance and generate lasting value for our shareholders."

On top of that, Credit Suisse revealed on Thursday that it had appointed Nita Patel as a new Chief Compliance Compliance In finance, banking, investing, and insurance compliance refers to following the rules or orders set down by the government regulatory authority, either as providing a service or processing a transaction. Compliance concerning finance would also be a state of being following established guidelines or specifications. This designation can also encompass efforts to ensure that organizations are abiding by both industry regulations and government legislation. Understanding ComplianceCompliance is a In finance, banking, investing, and insurance compliance refers to following the rules or orders set down by the government regulatory authority, either as providing a service or processing a transaction. Compliance concerning finance would also be a state of being following established guidelines or specifications. This designation can also encompass efforts to ensure that organizations are abiding by both industry regulations and government legislation. Understanding ComplianceCompliance is a Read this Term Officer (CCO). Patel will join the Executive Board and begin her new duties at the beginning of next month. Rafael Lopez Lorenzo has left the position for personal reasons.

Third Time's a Charm?

It is not the first time in recent years that a troubled Swiss banking giant has announced a 'strategic overhaul'.

In fact, this is the third attempt in a relatively short period of time in which the bank's executives are trying to solve deep-rooted problems. Credit Suisse was once a symbol of Swiss quality and a guarantee of stability. But, years of scandals, including money laundering, have cast a shadow over the institution's operations and caused investors to turn away from it.

In addition to the previously mentioned changes, the current strategy is to reduce the cost base of the entire Group by 15% (about 2.5 billion Swiss francs) to 14.5 billion in 2025. Moreover, Credit Suisse wants to reduce Risk Weighted Assets (RWAs) and Leverage Leverage In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders Read this Term Exposure, and the reduction in each is projected to reach around 40%.

"Over 166 years, Credit Suisse has built a powerful and respected franchise, but we recognize that in recent years we have become unfocused. For a number of months, the Board of Directors along with the Executive Board has been assessing our future direction and, in doing so, we believe we have left no stone unturned," Axel P. Lehmann, the Chairman of the Board of Directors of Credit Suisse, said.

Approximately 80% of the Group's capital will be allocated to the Swiss Bank, Asset Management, Markets and Wealth Management divisions.