Swiss bank Credit Suisse suffered outflows worth 61.2 billion Swiss francs ($69 billion) in Q1, 2023, demonstrating the challenge UBS faces to retain key customers and assets after the emergency acquisition of its biggest rival.
The disclosure of the extent of customer flight from the bank is the first since the acquisition was completed, highlighting the damage to the business sector that forced Swiss regulators to intervene.
In March, UBS agreed to acquire Credit Suisse for 3 billion francs ($3.2 billion).
Credit Suisse said in its latest financial report as an independent institution on Monday that customer exodus was most acute in the days before Swiss regulators coordinated the UBS bailout, adding that while outflows had stabilized, they had not declined.
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Credit Suisse’s main wealth management unit lost 9 percent of assets in the first quarter (CHF47.1 billion), a hemorrhage that would cut the fees it generates and “potentially lead to a significant loss of wealth management” in the second quarter, Credit Suisse said when releasing quarterly results.
Analysts expected both banks to lose customers, especially wealthy ones who have accounts in each bank and now want to diversify.
Thomas Hallett, an analyst at Kivi, Pruett & Woods, was quoted by the Financial Times on Monday saying: “The magnitude of the losses and outflows is alarming.”
“There’s more to come. Simply put, even if UBS could collect CHF 8 billion in costs by 2027, the revenue trajectory has been so damaged that the deal could remain a burden on UPS’s operating results unless a deeper restructuring plan is announced.”
At the same time, the bank recorded a profit of CHF12.8 billion in the first quarter of 2023, compared to losses during the same period of the previous year, mainly due to the controversial write-off of CHF 15 billion AT1 bondholders under the acquisition arrangements made by its rival, UPS. The adjusted pretax loss came in at CHF 1.3 billion.
As part of a massive merger between the two Swiss banks last month, Swiss authorities demanded that 16 billion Swiss francs ($17.9 billion) of the “first tranche plus capital bonds” be deemed worthless.
Lawsuit
The decision angered the bondholders, who are supposed to enjoy greater shareholder protection.
This fact has prompted a group of Swiss and international investors, who account for more than a quarter of the debt canceled, equivalent to 4.5 billion Swiss francs, to take legal action against the Swiss Financial Market Supervisory Authority (FINMA).
They tasked the international law firm Queen Emmanuel with filing a formal complaint with the Federal Administrative Court in St. Gallen, northeastern Switzerland.
“Bondholders challenge the legality of FINMA’s decision that led to an alleged reduction in the value of AT1 bonds,” the law firm said.
The statement quoted Queen Emmanuel’s managing partner in Switzerland, Thomas Verlaine, as saying that “Finma’s decision undermines international trust (…) in Switzerland as a financial center.”
“We are committed to correcting this decision, which is not only in the interest of our customers but also strengthens Switzerland’s position as a key jurisdiction in the global financial system.”
A number of other lawsuits challenging the decision to delist AT1 bonds are reportedly pending in Switzerland and abroad.
AT1 bonds, also known as coco, or conditional convertible bonds, were created in the aftermath of the 2008 global financial crisis with the aim of placing the burden of losses on investors rather than taxpayers.
The UBS takeover is expected to close in the coming months and is designed to help stabilize a global financial system that has suffered from the collapse of two U.S. banks.
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