Credit Suisse warns of ‘material weaknesses’ in financial reporting
Credit Suisse has said it found “material weaknesses” in its financial reporting controls and that clients were still withdrawing cash, the latest blow to the Swiss bank as it tries to recover from a string of scandals.
The bank’s shares fell as much as 5% on Tuesday, dropping as low as 2.12 Swiss francs – close to the record low on Monday – before recovering some ground to be down 0.7%. Credit Suisse’s bonds also weakened to record lows on Tuesday, after comments in its delayed annual report.
“Management did not design and maintain an effective risk assessment process to identify and analyse the risk of material misstatements in its financial statements,” Credit Suisse said in its report.
It said its management team was working on a plan to address the weaknesses by “strengthening the risk and control frameworks”.
Last month, Credit Suisse reported its biggest annual loss since the 2008 global financial crisis and scrapped annual bonuses for its top executives after clients pulled billions from the bank after the scandals.
It said in the annual report that “significantly higher withdrawals of cash deposits” began early in the fourth quarter of last year, and “outflows stabilised to much lower levels but had not yet reversed as of the date of this report”. Outflows jumped to 123bn Swiss francs (£11bn) last year, which made it breach some liquidity buffers.
The bank had been forced to delay the publication of its annual report last week after a last-minute call from the US Securities and Exchange Commission relating to what Credit Suisse described as the “technical assessment” of revisions to cashflow statements going back to 2019. The bank said those discussions had now been concluded.
There was no impact on its financial results in any year, and all prudential ratios –including capital, leverage, liquidity and funding ratios – remained unchanged.
Russ Mould, the investment director at AJ Bell, said: “While the immediate fallout from the Silicon Valley Bank collapse may have been contained for now, the edginess around the banking sector isn’t helped by the latest revelations from Credit Suisse as it identified material weaknesses in reporting controls.
“It [the delayed annual report] may have been a ‘technical’ issue according to the Swiss bank but in the current environment and given the company’s recent sketchy track record, investors were hardly in a forgiving mood.”
The bank has shaken up its executive board, replacing longtime chief financial officer David Mathers with Dixit Joshi, who joined from Deutsche Bank where he was group treasurer. Mathers was the highest paid executive last year and received a total pay and perks package of 3.9m Swiss francs (£3.5m), the annual report showed.
Credit Suisse’s new chief executive, Ulrich Körner, previously the head of asset management who was promoted in August, was paid 2.5m Swiss francs last year.
The chairman, Axel Lehmann, decided to waive his fee of 1.5m Swiss francs for 2022 “given the poor financial performance in 2022 and challenging situation for the firm at the beginning of the three-year transformation”, according to the annual report.
The bank said the transformation it announced and started in 2022 to build a “new Credit Suisse” was “fully under way”.
Credit Suisse was hard hit by the collapse of the US investment firm Archegos in 2021, and the freezing of billions of supply chain finance funds linked to the insolvent British financier Lex Greensill.
Last year, the Guardian revealed how a massive leak exposed the hidden wealth of Credit Suisse clients involved in torture, drug trafficking, money laundering, corruption and other serious crimes.