Credit Suisse stock falls 7.6% after warning of third straight loss

Credit Suisse Group AG said a slump at its investment bank will lead to a third straight quarterly loss as it blamed volatile markets and clients cutting back on risk.

Shares of the troubled Swiss lender fell as much as 7.6% in Zurich trading after warning that results in the second quarter were impacted by clients pulling back, particularly in Asia. The firm is also weighing a fresh round of job cuts as it pledged to accelerate its effort to reduce expenses, people familiar with the matter said.

While rival banks have said in the past week that their traders are navigating the wild markets well, Credit Suisse’s trading and dealmaking unit has been hit by widening credit spreads and a drop in bond and stock issuance. That’s an echo of the first quarter, when most major European banks saw trading revenue climb but Credit Suisse saw a 50% drop.

The expected loss -- announced with the firm’s sixth profit warning in the past seven quarters -- adds to pressure on Chief Executive Officer Thomas Gottstein. His two years in charge have seen a $5.5 billion hit from Archegos, the collapse of partner Greensill Capital and numerous setbacks that eroded investor confidence, weakened key businesses and prompted an exodus of talent.

“Credit Suisse continues to lose market share across almost every division,” analysts at Citigroup Inc. led by Andrew Coombs wrote in a note. “Today’s profit warning blames ‘the current geopolitical situation’ and ‘significant monetary tightening’ yet we would argue Credit Suisse’s predicament may be largely self-inflicted.”

The lender has said that 2022 will be a year of transition as it reduces risk at the investment bank while shifting more resources to wealth management. Gottstein is set to present at the Goldman Sachs European Financials Conference on Thursday and is giving an investor “deep dive” on June 28 where the bank said it will update on its cost saving plans.

Credit Suisse fell 5.1% at 11:39 a.m. in Zurich trading, bringing losses this year to 30%. Earlier in the day, the stock had fallen to as low as 6.20 francs. A close at that price would be the lowest in Bloomberg records going back to 1989.

“From a share price perspective the only welcome news is that expectations now appear so low that the reaction to the last profit warning was muted,” the Citi analysts wrote.

During a strategy update last year, the bank announced a target of between 1 billion Swiss francs and 1.5 billion francs in structural cost savings by 2024 from combining its units into global ones, streamlining technology and the organizational structure. Credit Suisse said on Wednesday that it’s accelerating cost reductions “with the aim of maximizing savings from 2023 onwards.”

People familiar with the matter said the lender is considering headcount reductions across divisions including investment banking and wealth management in different regions. While final numbers have yet to be decided, the dismissals are likely to come in the run-up to the investor update, the people said, asking not to be identified as the matter is private.

A Credit Suisse spokeswoman declined to comment, pointing to the lender’s statement on Wednesday. 

The latest troubles are in stark contrast to the message from investment bank and capital markets head David Miller, who has been telling clients all year that the bank “is back” and ready to underwrite deals. 

While advisory revenues were indeed resilient, the investment bank as a whole is likely to post a loss in the second quarter, Credit Suisse said Wednesday. 

The trading business already experienced steeper revenue drops than rivals in the prior quarter, largely due to its business mix being more geared to credit than rates. That divergence appears to have played out in the second quarter as well.

Citigroup CEO Jane Fraser said last week that markets activity has been “healthy” for the firm’s trading business, while Deutsche Bank AG’s investment bank chief said his firm has seen trading momentum continue in the second quarter.

Credit Suisse also warned of “continued volatility” in the market value of its 8.6% stake in Allfunds Group, which hit earnings in the first quarter as well. The fintech firm’s shares have fallen about 22% this quarter, bringing its slide this year to 53%.

Outside the investment bank, Credit Suisse cited weak asset inflows and risk aversion by wealthy clients in the Asia Pacific region. Banking executives have said that until there is more clarity on interest rates and a possible recession, investors are likely to remain on the sidelines.

Deutsche Bank wealth head Claudio de Sanctis said last month that deleveraging by Asia clients and the Ukraine invasion have dampened the German lenders second-quarter performance. And UBS Group AG warned during first-quarter earnings that it was continuing to see caution from investors in the region amid global geopolitical uncertainty and Covid-related restrictions.

Since the Archegos blow, which led to the departure of investment bank head Brian Chin and risk chief Lara Warner, the bad news at Credit Suisse has continued apace. The bank ousted reform-minded Chairman Antonio Horta-Osorio after he broke Covid-19 quarantine rules. Recent surprise charges include 703 million francs of legal expenses in the first quarter, with the bank flagging that more legal costs may still be to come. 

Steadily, the ranks of the management board that Gottstein inherited have been replaced, leaving the CEO as the last one standing since he took over. 

Gottstein said in a recent TV interview from Davos that he has a “clear mandate” to steer the bank past one of the most tumultuous periods of its recent history, after Bloomberg reported that members of the board of directors had held early stage talks on potentially replacing the executive. 

Chairman Axel Lehmann reiterated his support for Gottstein in a CNBC interview at Davos, telling the news organization that he fully backed the executive “because he’s good.”