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Credit Suisse issues fourth-quarter profit warning as legal costs rise

A Credit Suisse logo in the window of a Credit Suisse Group AG bank branch in Zurich, Switzerland.
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Credit Suisse announced on Tuesday that its fourth-quarter earnings are set to be “negatively impacted” by increased litigation provisions.

The Swiss bank said a charge of roughly 500 million Swiss francs ($545 million) is expected to push its earnings to breakeven.

The profit warning comes after a series of high-profile scandals that have rocked the bank in recent years. Most recently, Chairman Antonio Horta-Osorio resigned earlier this month after violating Covid-19 quarantine rules.

“Credit Suisse Group (Group) today announced that the reported profits for the fourth quarter 2021 will be negatively impacted by litigation provisions of approximately CHF 500 million, partly offset by gains on real estate sales of CHF 225 million,” the bank said in a trading update on Tuesday.

“These litigation provisions have been incurred in respect of a number of cases where the Group has more proactively pursued settlements and primarily relate to legacy litigation matters from our investment banking business.”

Credit Suisse added that this is expected to result in a “reported pre-tax income/(loss) for the Group of approximately breakeven for the fourth quarter 2021.”

The bank is scheduled to report fourth-quarter results on Feb. 10.

The Swiss lender’s investment bank suffered considerable hits in 2021 from its involvement with collapsed investment firm Archegos Capital and insolvent supply chain finance company Greensill.

The departure of Horta-Osorio, who was brought in to clean up the bank’s corporate culture in the wake of these sagas, followed the high-profile resignation of former CEO Tidjane Thiam in early 2020 following a bizarre and protracted spying scandal.

Switzerland’s second-largest lender also on Tuesday flagged a decline in trading revenues at its investment bank and wealth management businesses. It attributed this to both a seasonal slowdown and a “reversion to more normal trading conditions” after the unusually high volumes seen through 2020 and 2021.

The investment bank is on course to post a loss on the back of a reduced risk appetite and exit from its prime services business, Credit Suisse said. It has set aside a 1.5 billion Swiss franc impairment for the division.

The core wealth management business is also expected to be hit by a slowdown in transactions, giving “modestly negative” net new assets

Credit Suisse announced that its 2021 CET1 ratio — a measure of bank solvency — is set to exceed its target of 14%, however, while its Tier 1 leverage ratio — a measure of financial strength — is expected to exceed 6%.

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