Credit Suisse saw its share price drop 5% on November 23 following news that the investment bank would bleed roughly $1.6 billion in the fourth quarter.
Between September 30 and November 11, Switzerland’s second-largest bank by assets under management experienced over $88 billion in outflows. This represents a 6% reduction of its colossal $1.47 trillion in assets. In particular, the investment bank’s wealth-management division, responsible for serving some of the financial institution’s richest clients, saw $66.7 billion flow out.
Shares were down roughly 57% this year through the close of business day on November 23.
The redemptions follow speculation in late October that the institution’s financial health was in question after a rapid depreciation in the value of its riskiest bonds coupled with a corresponding rise in the cost to insure the bank’s debt against default. Credit default swaps, a potentially risky derivative product offered by the financial institution, provide buyers protection in the event of default.
As news of its challenges broke, clients began to pull money from the bank. As redemptions accelerated, the bank’s liquidity requirements fell below certain required levels. The rules exist to ensure banks maintain a sufficiently healthy level of deposits on hand at any given time, legacy rules that grew out of the 2007-2008 Financial Crisis.
Last month, the massive financial institution announced plans to trim thousands of positions. By the end of 2025, the bank expects to cut 9,000 jobs from its current total of roughly 52,000.
Credit Suisse also revealed plans to raise $4 billion in funding to assist with its recovery efforts. The Saudi National Bank is reportedly looking to take on upwards of 9.9%, or nearly $400 million, of the new issue.
“These decisive measures are expected to result in a radical restructuring of the Investment Bank, an accelerated cost transformation, and strengthened and reallocated capital, each of which are (sic) progressing at pace,” the bank said in a market update.
Despite signs that the bank is taking action, some experts are concerned that the latest capital raise will be insufficient to compensate for potential shortfalls in its business revenue. Fewer customer assets equate lower fees. Since June, Credit Suisse has witnessed $100 billion in assets evaporate.
Credit Suisse Chairman Axel Lehmann says the approval of the new share issue shows its investors are confident in the 166-year-old institution. Moreover, Credit Suisse claims client balances have stabilized, and redemptions have eased within their wealth management arm.
Still, on balance, the bank continues to shed assets.
Wealth management represents the largest division of Credit Suisse. As part of its revitalization efforts, the investment firm intends to focus on this core business and improve its revenue-generating potential. At the same time, it plans to reduce reliance on generating revenue via riskier trades, like the issuance of credit default swaps.
The outflows from the bank’s flagship wealth management business sent ripples through the market, culminating in trending posts on social media platforms like Twitter and Reddit.
For their part, Credit Suisse is busy trying to quell any concerns before outflows get any worse.
“These actions and other deleveraging measures including, but not limited to, in the non-core businesses, are expected to strengthen liquidity ratios and reduce the funding requirements of the Group,” the bank said in a recent statement.
