The Credit Suisse Group logo in Davos, Switzerland, on Monday, January 16, 2023.
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Shares of Credit Switzerland fell 5% in early Tuesday trading to hit a new low after the bank announced it found “material weaknesses” in its financial reporting processes for 2022 and 2021.
Since then, shares have made up some of their losses, but continued to drop more than 4% at 9:30am London time.
The embattled Swiss lender disclosed the observation in its annual report, which was initially scheduled for release last Thursday but was delayed by a belated call from the U.S. Securities and Exchange Commission (SEC).
The SEC discussion related to a “technical review of previously disclosed revisions to the consolidated cash flow statements for the years ended December 31, 2020 and 2019, as well as related controls.”
In Tuesday’s annual report, Credit Suisse revealed that it had identified “certain material deficiencies in our internal control over financial reporting” for the years 2021 and 2022.
These issues related to the “failure to design and maintain an effective risk assessment process to identify and analyze the risk of material misstatement” and various deficiencies in internal control and communication.
Despite this, the bank said it can confirm that its financial statements for the years in question are “fairly, in all material respects, (its) consolidated financial condition.”
Credit Suisse went on to say net asset outflows had eased but “have not yet been reversed”. The bank confirmed its 2022 results, announced on February 9, which showed a full-year net loss of 7.3 billion Swiss francs ($8 billion).
Liquidity risk
At the end of 2022, the bank announced that it saw “significantly higher withdrawals of cash deposits, non-renewal of maturing term deposits and net asset outflows at levels significantly higher than the rates of the third quarter of 2022”.
Credit Suisse saw more than CHF 110 billion in withdrawals from customers in the fourth quarter due to a series of scandals, old risks and compliance shortcomings.
“These outflows stabilized to much lower levels, but had not yet been reversed as of the date of this report. These outflows resulted in us partially using liquidity buffers at the Group and legal entity level, and we came under certain legal requirements at the legal entity level.”
Credit Suisse acknowledged that these conditions have “exacerbated and may continue to exacerbate” liquidity risks. The reduction in assets under management is expected to result in lower net interest income and recurring commissions and fees, which in turn will affect the bank’s capital position objectives.
“Failure to reverse these outflows and restore our assets under management and deposits could have a material adverse effect on our results of operations and financial condition,” the report said.
Credit Suisse reiterated that it has taken “decisive action” on legacy issues as part of its ongoing large-scale strategic overhaul, which is expected to result in a further “significant” financial loss in 2023.
The bank’s board collectively waived a bonus for the first time in more than 15 years, the annual report confirms, taking home a combined fixed fee of CHF 32.2 million.