Credit Suisse warns of $1.6 billion loss after customers raise money

Credit Suisse CS -1.45%

Group AG warned it would lose about $1.6 billion in the fourth quarter after customers withdrew their investments and deposits over concerns about the bank’s financial health.

Switzerland’s No. 2 bank by assets said outflows between Sept. 30 and Nov. 11 amounted to about 6% of its total assets of $1.47 trillion, or about $88.3 billion. $66.7 billion withdrawn from the bank. Credit Suisse said in late October that a social media frenzy surrounding his health caused a major outflow.

Due to the rapid pace of withdrawals, the bank’s liquidity fell below a number of local requirements, the bank said. It said it maintained its required group-level liquidity and funding ratios at all times. Banks must keep sufficient liquidity on hand to cover the expected cash outflow in a 30-day period, following post-financial crisis rules.

Credit Suisse shares fell 5% on Wednesday. If the decline continues, the price would move below the closing low of Sept. 29, according to FactSet. Shares are down nearly 60% this year.

The cost of insuring the bank’s debt against default rose on Wednesday.

The warning comes at a precarious time for the bank, which began a major overhaul of its operations weeks ago. Credit Suisse received shareholder approval on Wednesday for a plan to raise more than $4 billion in new shares. It is in the process of selling a large group within its investment bank to free up capital as part of its recovery efforts.

The new stock is sold to new and existing investors. Saudi National Bank said it would take a stake of up to 9.9% as a new shareholder. Some analysts are concerned that the new capital raise may not be enough if Credit Suisse’s revamp doesn’t go according to plan. The bank’s capital needs depend on the sale and termination of some businesses and on the performance of its continuing operations.

Chairman Axel Lehmann said shareholders showed their confidence in the bank by approving the share increase.

Due to the reduction in client assets, Credit Suisse has less money to manage and earns less in fees. A broader slowdown in activity in the asset management division and the investment bank contributed to the warning of a pretax loss of about $1.6 billion for the quarter, it said.

In total, more than $100 billion has left the bank since June, according to Credit Suisse filings. It said client deposits at its Swiss bank have stabilized and asset management outflows have slowed but not reversed.

Wealth management, the management of wealthy people’s money, is Credit Suisse’s largest and most important business. The bank’s overhaul aims to reduce its reliance on risky Wall Street trades and double down on its steady collection of fees by partnering with the world’s ultra-rich.

Large outflows indicate that despite its more than 160-year history, some of those affluent clients have become wary of Credit Suisse’s problems. The bank was hit hard when a client, family office Archegos Capital Management, defaulted in March 2021, resulting in a loss of more than $5 billion.

Uncertain markets have resulted in clients transacting less between asset managers. However, crosstown rival UBS Group AG reported about $35 billion in net new free generating assets from wealth and asset management clients in the third quarter.

Concerns about the bank peaked in October when commenters on social media platforms Twitter and Reddit questioned the bank’s health.

Credit Suisse last month warned it would make a net loss in the fourth quarter, in part because of revision costs. It posted consecutive quarterly losses this year after it began restructuring its operations late last year. In the fourth quarter of last year, it lost about $1.7 billion.

The bank said it is still aiming for a capital ratio of at least 13% between 2023 and 2025 during the restructuring.

Write to Margot Patrick at [email protected]

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