Credit Suisse increases loan provisions sevenfold as coronavirus hits clients

Updates from Credit Suisse Group AG

Credit Suisse reported a seven-fold increase in bad debt reserves in the first quarter as the Swiss bank became the latest global lender to prepare for a wave of potential bankruptcies and defaults amid the coronavirus pandemic.

Provisions for loans climbed 600% to 568 million Swiss francs (583 million Swiss francs) from 81 million Swiss francs in the same period last year, the Zurich-based company said Thursday. The initial estimated blow from the global foreclosure rises to over $ 1 billion when hundreds of millions of write-downs of its investment bank’s assets are included.

“We assume deep recessions in Switzerland, the euro area and the United States and have made appropriate assumptions about taking provisions on a macroeconomic basis,” said Thomas Gottstein, new CEO of Credit Suisse. There could be “a significant build-up of reserves in the coming quarters, especially in the non-Swiss portfolio and asset management,” he added.

Despite these headwinds, Credit Suisse posted its highest quarterly net profit since 2015, up 75% to 1.3 billion Swiss francs. Trading income surged at the investment bank, which benefited from regulatory and government actions to ease the blow of Covid-19 on the financial system, and one-off gains from asset disposals.

Profits for Switzerland’s second-largest bank follow turbulent times and are the first round of quarterly results for Mr Gottstein, 56, who was promoted two months ago after his predecessor Tidjane Thiam was kicked out in a bitter battle to the board of directors.

Thomas Gottstein, Director of Credit Suisse: “The first three weeks have been precious and useful for me. . .[but]then the world changed with the pandemic becoming our reality ‘

“The first three weeks have been precious and useful for me. . .[but]then the world changed with the pandemic becoming our reality, ”he said.

CFO David Mathers said the bank was taking a cautious approach to loan losses as it entered the “worst economic crisis the world has seen since the 1920s.” There is potential for future capital releases if the arrangements were too pessimistic, but predicting this was “dangerous” in the current environment, he added.

The stock fell 2.3%, extending its decline to around 40% this year. Executives said the 1.5 billion Swiss franc share buyback plan was on hold until at least the third quarter.

Credit Suisse’s approach echoes that of Italian UniCredit, which announced this week that it would set aside an additional 900 million euros to cover the impact of the coronavirus on its loan portfolio. Earlier in the month, the six largest U.S. lenders increased their loan provisions by $ 25.4 billion, a 350% year-over-year increase.

The Swiss bank is one of the largest wealth managers in the world. Assets under management fell 9% in the quarter to 1.37 billion Swiss francs due to asset write-downs and the strengthening of the Swiss franc, despite 5.8 billion Swiss francs in net customer inflows.

“All good work in the wealth business is overshadowed by markdowns as well as provisions,” JPMorgan analyst Kian Abouhossein said. “There could be more to come, creating uncertainty around its valuation.”

Overall quarterly revenue for the Credit Suisse group was strong at 5.8 billion Swiss francs, up 7% year-on-year, as trading activity in financial markets increased. This was motivated by the repositioning of ultra-rich and institutional clients to overcome market turmoil.

However, the lender has failed to keep pace with its US peers in investment banking. Revenue rose only 3% to $ 2.4 billion in dollars, from an average jump of more than a fifth on Wall Street, according to analysts at Redburn.

While income from the sale and trading of fixed income securities increased by 26% and equities by 24%, income from capital markets and M&A advisory plunged 38% as transactions declined. evaporated due to the global lockdown.

Overall, Credit Suisse traders recorded a loss of $ 392 million in the quarter as they helped sustain $ 459 million in mark-to-market losses as asset values ​​declined. , especially leveraged loans.

Mr Gottstein said there had been “a certain turnaround in April. . . but it is too early to say more until we see how the markets move in the second quarter ”.

He stressed that a conservative stance in risky areas of corporate lending such as structured finance and energy meant he was well positioned relative to his peers.

In particular, exposure to oil and gas has been reduced by 16% since the last oil shock at the end of 2015 and totals only $ 7.7 billion, the majority of these loans being investment grade.

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