Credit Suisse today offered the balance of damages from the crisis that ended its 167-year history at the end of March. In the second half of that month, the entity suffered a massive flight of deposits that has not been fully stopped and that amounted to 67,000 million Swiss francs (68,400 million euros).
The exits accelerated in the week in which it reported “material inconsistencies” in its financial statements, lost the support of its main shareholder and had to request an emergency line from the Swiss National Bank. That weekend, UBS agreed to the express purchase of the entity.
The bank “experienced a significant outflow of capital in net terms, especially in the second part of March,” Credit Suisse acknowledged today. Only direct withdrawals and orders not to renew deposits were enough to force him to request emergency liquidity.
The loss of customers, he indicates, has already moderated, but to date it has not been completely contained. There have been other types of withdrawals, although the largest has been that of deposits, which has especially affected the business of large fortunes and banking in Switzerland.
The entity has not been slow to make use of the liquidity line offered by the Swiss central bank. It has already requested 108 billion Swiss francs, having returned another 60 billion. His efforts, he says, are now focused on a quick integration with UBS and on continuing with the cost-cutting plan.
Were it not for these aspects, Credit Suisse’s bottom line would appear to be that of an extremely solvent bank. The entity reports profits, with liquidity ratios and capital quality much higher than the European average. The problem is that these numbers are a consequence of the bailout.
Its net profit stood at 12,432 million Swiss francs (more than 13,000 million euros) in the first quarter, compared to losses in the same period of the previous year.
This figure is actually a consequence of the amortization of the CoCos, which are the convertible contingent bonds that were owned by the investors and that, in accordance with the particular order of priority orchestrated by the Swiss National Bank in the rescue, were transformed into capital .
CoCo owners have been the main victims of the Credit Suisse crisis. The bank has noted a positive impact of 15,000 million Swiss francs (15,300 million euros) for the amortization of these instruments, and has taken them to net profit.
The group reports a ratio of quality capital to risk-weighted assets of 20.3%, compared with 14.1% a year earlier. It is again a trompe l’oeil consequence of the liquidation of the CoCos: “The increase in the CET1 capital was mainly due to the redemption of the AT1”, he indicates.
Banks are required to maintain a minimum percentage of quality assets known as CET1, which includes shares and reserves. If it proves insufficient, the next firewall is AT1, which are CoCos, that is, a type of debt that, in the event of a crisis, can be converted into capital. Swiss supervisors sacrificed AT1 against CET1, creating a particular crisis in the CoCos market.
The injections from the central bank have allowed the bank to have a liquidity ratio now of 178%, that is, enough to face almost two months without oxygen.
More bailout accounting mirages: Credit Suisse, which has assets under management of 1.3 trillion Swiss francs, brought in 18.4 billion Swiss francs in the quarter, up 319%, and quadrupled its operating profit.
Where the crisis is evident is in the squad. The bank reduced a workforce by 9% at the end of the first quarter compared to the same month of the previous year.
