Credit Suisse warns of first-quarter loss as legal provisions swell

Credit Suisse has warned it expects a first-quarter loss after a sharp rise in its legal provisions, the latest blow to the Swiss bank which has struggled to draw a line under multiple crises in recent times. years.

The bank said on Wednesday it would set aside an additional 600 million Swiss francs (584 million euros) for litigation provisions in the first quarter, bringing the total to around 700 million Swiss francs for what it described like developments in legal cases that started more than a year ago. a decade ago. This marked a 60% increase from the previous quarter.

Along with the much higher statutory provisions, Credit Suisse said the fallout from Russia’s invasion of Ukraine would leave it with around 200 million Swiss francs of “negative revenue and provisions for credit losses.”

The bank did not provide details of the litigation covered by the provisions, but the increase comes less than a month after Bidzina Ivanishvili, the former Georgian prime minister, won a long-running lawsuit against it.

The judge handling the case ruled that Mr. Ivanishvili, who was a client of the bank, and his family owed damages “well in excess of 500 million dollars (460 million euros)”. Credit Suisse, whose shares are down more than 20% this year, will release its first-quarter results on April 27.

Downside risk

“Credit Suisse . . . continues to be impacted by one-off business-specific events, in particular litigation risk, and [this] We believe this increases the downside risk to consensus earnings forecasts,” said Jefferies analyst Flora Bocahut.

In January, the bank set aside 436 million Swiss francs in the fourth quarter to cover litigation settlements, but it said at the time that these were mainly related to its investment banking business. Mr Ivanishvili was a client of the private bank who sued the Bermudian life insurance subsidiary of Credit Suisse.

Shortly after Russia invaded Ukraine, Credit Suisse detailed gross credit exposure to Russia of 1.6 billion Swiss francs at the end of 2021. The lender said this included derivatives and financing exposures in its investment banking, trade finance exposures in its Swiss National Bank and loans in its heritage business.

He added that after taking into account hedges, guarantees, insurance and collateral, his net risk exposure was 848 million Swiss francs. In addition, Credit Suisse said its Russian subsidiaries – which employ 125 people – held 195 million Swiss francs in assets.

Losses

The bank previously announced that its first quarter results would include 350 million francs in losses linked to a fall in the value of its 8.6% stake in the Amsterdam-listed Allfunds group.

Credit Suisse added that its results would be further affected by a reduction in capital market issuance and a slowdown in business activity in the first quarter.

U.S. banks JPMorgan, Goldman Sachs and Citigroup all reported lower profits in their first-quarter results last week due to the war in Ukraine and the broader impact on trading and investment banking.

Credit Suisse said its first-quarter losses would be offset by 170 million francs in provisions recovered for its part in the collapse of family office Archegos a year ago – the biggest business loss in its 166-year history – and 160 million francs in property gains. – Copyright The Financial Times Limited 2022