Credit Suisse Takes $1 Billion Hit to Cover Coronavirus Impact

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Credit Suisse Group AG is taking more than $1 billion in writedowns and provisions for bad loans after the coronavirus, joining U.S. banks in taking an upfront hit as the outbreak pummels economic activity across the globe.

The bank held back 568 million Swiss francs ($585 million) for credit losses, almost triple what analysts had expected, and said it may have to make further allowances in future quarters. While trading results and overall profit were resilient, the bank is also taking 444 million francs in writedowns.

Switzerland’s second-largest lender is giving a window into how European lenders fared during an unprecedented and volatile quarter during which lockdowns hit corporate clients and whipsawed markets, with plenty of uncertainty still remaining over the duration of the crisis and the level of government assistance. U.S. banks made a point of taking the pain upfront, with lenders such as JPMorgan Chase & Co. and Wells Fargo & Co. posting their highest provisions in at least a decade.

Chief Executive Officer Thomas Gottstein, a 20-year Credit Suisse veteran and the bank’s first Swiss chief in almost two decades, is facing an extraordinary turn of events since taking over just two months ago that may throw the bank’s best-laid plans into disarray. Still, he’ll take comfort from the performance of the key trading and wealth management business, even as the investment bank did worse than expected.

27,639 in U.S.Most new cases today

-18% Change in MSCI World Index of global stocks since Wuhan lockdown, Jan. 23

-1.​112 Change in U.S. treasury bond yield since Wuhan lockdown, Jan. 23 -0.​5% Global GDP Tracker (annualized), March

European Banks Seek to Avert Stashing Billions for Bad Loans

“In my first quarter as CEO of the group we all witnessed a highly challenging environment with a severe impact from the COVID-19 pandemic,” Gottstein said in the statement. “We delivered a resilient performance, while absorbing a significant reserve builld of over 1 billion francs.”

The bank’s key trading business did better than expected on revenues and pre-tax profit as volatility boosted client activity, though stopped short of gains at U.S. peers. Global markets posted 1.63 billion francs of revenue, while pre-tax income jumped almost a fifth.

At Credit Suisse, some of the pain of the virus may be felt in the future. The impact of the pandemic on financial results remained difficult to assess, it said on Thursday. Credit Suisse has frozen its plan to buy back as much as 1.5 billion francs ($1.53 billion) of shares this year due to economic uncertainty caused by the coronavirus. It is also withholding part of the 2019 dividends until the second half, acknowledging that the real test for the financial system won’t come until later.

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Banks are building up their reserves as they brace for a severe recession and a increasing number of defaults. While U.S. competitors are collectively taking a $25 billion hit, European banks may beseeking to avoid setting aside billions of euros to cover bad loans or at least stagger some of the pain over several quarters. Italy’s UniCredit SpA said on Wednesday that it will take 900 million euros of provisions in the first quarter.

Other highlights of the bank’s results:

  • 1q net income CHF1.31 billion; estimate CHF997 million
  • 1q net revenue CHF5.78 billion vs. CHF5.39 billion
  • Return on tangible equity 13.1% vs 7.8% a year earlier
  • International wealth management revenue CHF1.5 billion vs CHF1.42 billion yr earlier
  • Asia-Pacific revenue CHF1.03 billion vs CHF854 million

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