The major Swiss bank reports earnings figures for the first quarter, comments on the current situation and warns of value adjustments.
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Started his tenure as CEO in extremely turbulent times: Thomas Gottstein has been head of Credit Suisse since mid-February.
KEYSTONE / Ennio Leanza
Credit Suisse earned significantly more in the first quarter than in the previous year. However, the big bank had to set up provisions due to the corona crisis. Net profit rose by 75 percent year-on-year to CHF 1.31 billion in the first quarter of 2020, as Credit Suisse announced on Thursday. The bank benefited from a negative tax rate. At the pre-tax level, the profit was CHF 1.20 billion. Income rose to CHF 5.78 billion after CHF 5.49 billion in the previous year. The investment bank slid deeper into the loss zone in the first quarter and posted a loss of CHF 392 million before tax.
Reserves against Corona
The bank is arming itself with reserves of over a billion francs for the corona crisis. They relate to provisions for bad loans and value adjustments in the investment bank due to the downturn in the oil and gas sector. “In the coming quarters, it may be necessary to build up additional reserves and make value adjustments,” warns the bank in its outlook. The provisions for bad loans largely relate to the investment bank and trading. The Swiss unit and the wealth management business are less affected.
Previously, the US banks, which were spoiled for success, had prepared themselves for loan losses in the billions due to the corona crisis. The profits then fell. JP Morgan, the largest bank in the United States, increased its bad debt provision by $ 6.8 billion, Wells Fargo increased it by $ 3.2 billion, and Citigroup by nearly $ 5 billion. They also face further burdens.
«A very difficult environment with drastic effects»
If borrowers can no longer repay their debts on time, banks have to set up provisions for so-called bad loans in accordance with very specific regulations. This is often the case during economic crises, so provisions tend to increase in turbulent times. The financial institutions then lack the money to make a profit. If the situation improves again and customers can still pay again, the banks can release the provisions again. The provisions for possible credit defaults at Credit Suisse per quarter are typically well below CHF 100 million.
“The first quarter under my leadership as the Group’s CEO was characterized by a very difficult environment with drastic effects as a result of the COVID 19 pandemic,” said Thomas Gottstein, who presented the figures for the first time as a group leader. Although a significant reserve of over CHF 1 billion had been absorbed, the bank had achieved a solid result.
The results exceeded analysts’ estimates. However, there was a high level of uncertainty in advance – the range of estimates was correspondingly large. According to the consensus of the agency AWP, the experts assumed an average total income of 5.44 billion, a pre-tax profit of 1.25 billion and a consolidated profit of CHF 910 million.
14,000 corona loans granted
To date, Credit Suisse has granted around 14,000 loans totaling CHF 2.4 billion as part of the Corona credit program initiated by the federal government.
The management of the bank around Gottstein wants to donate at least 20 percent of their basic salary to Corona victims in the next six months. Chairman of the Board of Directors Urs Rohner wants to get involved to a similar extent.
Credit Suisse is facing trouble with the US judiciary
Credit Suisse is facing legal problems in the US, as was announced yesterday Wednesday. A plaintiff from Puerto Rico has accused the major Swiss bank and nine other financial institutions of having charged prices for corporate bonds for years.
This emerged from documents that were submitted to a federal court in Manhattan on Tuesday. In addition to Credit Suisse, the accused financial institutions include Deutsche Bank, the US financial institutions JPMorgan, Bank of America, Goldman Sachs, Morgan Stanley, Citigroup and Wells Fargo as well as the British banks Barclays and Royal Bank of Scotland. How many investors are behind the class action is unclear. It is not possible to predict whether such lawsuits will result in concrete negotiations.
Ethos rejects CS reimbursement
The Credit Suisse Annual General Meeting will take place in one week today. Before that, the shareholder representative, Ethos, positions himself. Ethos recommends that CS shareholders refuse to de-charge the bank management and reject the remuneration report. In addition, they should no longer elect incumbent President Urs Rohner and refrain from paying a dividend.
Given the serious lack of leadership that came to light during the shadowing affair surrounding former senior management, it was too early to décharge the bank’s leadership, Ethos wrote in a media release on Tuesday. The affair, in particular regarding the shading of the former “CS star banker” Iqbal Khan, who had switched to competitor UBS, had seriously damaged the bank’s reputation.
Remuneration too high
Ethos believes that too little attention is paid to management remuneration. In particular, the annual bonus that was given to CS boss Tidjane Thiam, who resigned in February 2020, was far too high. The shareholder representative recommends that the remuneration report at the AGM should therefore be rejected.
Ethos is also opposed to the re-election of Urs Rohner, Chairman of the Board of Directors. In view of the numerous affairs, a change of the Presidium has been essential since 2017 in order to restore the trust of the shareholders.
Financial uncertainties
Finally, according to Ethos, shareholders should forego paying a dividend this year. Due to the economic and financial uncertainties associated with the Corona pandemic, this is appropriate. The CS had proposed to pay the dividend in two steps of CHF 0.1388 per share.
Last week, voting adviser Glass Lewis recommended that the major bank’s remuneration report be rejected. With regard to the damage to its reputation, Glass Lewis also spoke out against relieving the top management.
The ISS voting rights adviser, on the other hand, recommended that the shareholders accept the corresponding proposals.
* with material from the SDA agency
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