Credit Suisse (NASDAQ: USOL) lost 0.43 percent. Unfavorable market conditions and lower profitability at the investment bank are projected to result in another quarterly loss for Group AG.
According to the Swiss bank, a major source of income for investment banking has been eliminated as corporations choose not to issue fresh shares or bonds under turbulent circumstances.
The bank’s second-quarter results are expected to show a deficit for the third consecutive quarter, it said.
To acknowledge the current economic climate, the bank has reduced its target capital ratio to 13.5% from 14.5%. Compared to the end of December, the ratio went decreased to 13.8% at the end of March.
Management had said that the bank would not need additional capital and that the leverage ratio would grow over 14 percent by the end of the year.
With no profit, it is impossible for a bank to acquire new capital, which functions as a buffer in the event that loans go bad, thereby safeguarding the bank. Although its stock price and valuation are low, investors are concerned that it will need to seek more funds. Bets on the bank’s recovery would be at risk in such a scenario.
At an investor day on June 28, the company announced it will speed up its cost-cutting efforts and provide more information.
By FactSet, Credit Suisse shares fell 7% and were expected to close at a record low, making it one of Europe’s worst performers. An early indicator that Russia’s invasion of Ukraine has had an impact on financial markets is the warning of a loss for this quarter.
Credit Suisse is a major participant in the stock and bond markets when it comes to helping firms raise capital. IPOs and SPACs, sometimes known as “blank-check” corporations, have almost disappeared from the market as a result of the recent stock market decline. Inflation and increasing interest rates have also hindered the flow of debt finance.
It has been a decade since the financial crisis that the lender, a hybrid of a worldwide private bank serving the wealthy and a Wall Street investment house, has undergone significant reorganization, but it is still beset by lawsuits and regulatory investigations originating from that time.
Exiting stock holdings at family office Archegos Capital Management cost it almost $5 billion in cash last year, putting the brakes on its revival. Switzerland’s banking authority imposed extra capital requirements and increased its monitoring of the bank in addition to the financial loss.
When the family office’s enormous stock investments collapsed in March 2021, Credit Suisse suffered the most among Wall Street institutions, resulting in about $10 billion in losses for all banks.
The Archegos incident was only the latest in a long line of scandals plaguing Europe’s most scandal-prone bank. Also, Greensill Capital, the company’s finance partner, went bankrupt and the company’s chairman resigned in January for breaking Covid-19 regulations. Earlier this year, a court in Bermuda ordered the bank to pay $500 million in damages to an unhappy billionaire customer.
President and CEO Axel Lehmann told Credit Suisse shareholders in April that the bank must improve its risk foresight and rediscover its Swiss roots and the ideals of its 1866 founder Alfred Escher.
A reorganization of key executives, including the company’s chief financial officer, was announced earlier this year.
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