After inquiries from US regulators this week, Credit Suisse Group AG stated that it discovered “significant deficiencies” in its reporting and control systems for the previous two years.
The Zurich-based bank announced Tuesday that it will take action to address insufficient checks on the procedure it uses to compile its financial reports. Yet, the company said that its 2022 and 2021 financial statements “fairly present” its financial situation.
Due to last-minute inquiries from the Securities and Exchange Commission over cash-flow statements for 2019 and 2020, Credit Suisse was obliged to postpone the release of its annual report from last week. The bank claims that these discussions are now over. In an effort to bring the bank back to profitability, Chief Executive Officer Ulrich Koerner is attempting to push through a complicated reorganisation. However, this process now runs the risk of becoming stymied by a larger financial selloff tied to US lender Silicon Valley Bank.
The reevaluation coincides with a “adverse opinion” on the group’s internal controls offered by accounting firm PwC. The bank said that certain of the past years’ statements had to be revised a year ago as a result of material flaws. Credit Suisse stated that in order to rectify any substantial flaws or shortcomings, it “may need us to devote considerable resources.”
The Swiss lender’s stock dropped as much as 5.6% on Tuesday. With a 20% decline this year, the stock is now trading close to a record low.
Government bonds increased as a result of the statement, which increased anxiety about financial turmoil and increased demand for safe-haven assets. On Tuesday, the yield on the two-year Treasury continued to decline until climbing back to just above 4%. The S&P 500 and Nasdaq 100 futures both increased by roughly 0.2%. After plummeting the most since December on Monday, the Stoxx 600 equity index for Europe showed little change. On Monday, shares of Credit Suisse fell by roughly 10%.
The family office connected to investor Bill Hwang, Archegos Capital Management, caused Credit Suisse to experience a multi-billion dollar loss in 2021. It then released a study outlining the procedural errors that caused the disaster. Since then, the bank has entirely changed its top management, and it is currently implementing its second re-boot strategy.
After the lender’s worst yearly performance since the 2008 financial crisis, the bank stated in the remuneration report filed on Tuesday that Chairman Axel Lehmann will forego a payout of 1.5 million Swiss francs ($1.6 million) for his first full year in the position.
According to the bank’s remuneration report, which was released on Tuesday after a delay of several days owing to a last-minute inquiry by US regulators, Lehmann, who assumed the job in January 2022, would not receive the normal fee that is typically paid in addition to board members’ wages.
Lehmann will suggest accepting a lower total salary of 3.8 million francs for the upcoming pay period at the annual shareholder meeting despite receiving compensation of 3 million francs for the pay period from April 2022 to April 2023. The bank also intends to boost the percentage of shares used to pay the chairman’s compensation from 33% to 50%.
Lehmann’s decision to waive his fees is similar to that of executive-board members who did not get a bonus for the previous year, which saw the lender experience record client money withdrawals and a decline in share price due to investor concerns over its restructuring plans. The bank reduced the amount set aside for the 2022 pool for all employees by roughly half, from 2 billion francs to just 1 billion francs.
Koerner received 2.5 million Swiss francs in total salary in 2022, which included his time as an Executive Board member prior to his appointment as CEO.
Since the last quarter of 2022, when more than 110 billion francs was taken out, Credit Suisse has been plagued by customer capital outflows. Yet after launching a significant push to regain the trust of its customers, the bank reported on Tuesday that withdrawals had persisted into this month.
The restructuring of the lender depends on the division of the investment banking division into several units under the Credit Suisse First Boston name. According to the lender’s statement on Tuesday, if the spinoff’s plans for an IPO are carried through, senior executives will hold up to a fifth of that company.
According to the annual report, employees would receive restricted share units in CS First Boston, which would vest three years following the offering and be subject to an additional holding requirement. Additionally, the rewards are meant to provide for salaries to upcoming senior hires.
