Credit Suisse to slash jobs after record loss
Switzerland's second biggest bank, Credit Suisse Group, has declared a net loss of SFr3.3 billion ($2.4 billion) for 2002, the worst result in the institution's 150-year history.
CS also announced that it would be shedding 1,250 jobs – 950 at its financial services division and 350 at its Winterthur insurance arm.
“It’s a pretty tough picture right now,” CS chief financial officer, Philip Ryan, told swissinfo.
“It will remain that way until we get some clarity on the geopolitical situation and how the economy develops in the second half of the year,” he added.
The record full-year net loss of SFr3.3 billion was substantially down on the SFr1.6 billion net profit of a year ago.
CS, which posted its 2002 results on Tuesday, said it had suffered a net loss of SFr950 million for the fourth quarter.
It added that it would be reducing its dividend by 95 per cent, from SFr2 in 2001 to a proposed SFr0.10 for last year.
CS said the poor results were influenced by “continuing financial market weakness” and a number of exceptional items.
These included pre-tax charges of around SFr1 billion for legal settlements in the United States relating to research analyst independence, certain IPO practices, Enron and other related litigation.
Pershing sale
There was also an after-tax loss of SFr390 million in connection with the sale of the securities clearing unit, Pershing.
CS added that it drew some comfort from the fact that results had recovered at its Winterthur unit, where the insurance and life & pensions divisions are being merged.
“We are actively pursuing initiatives to reduce costs and withdraw from markets and businesses with unsatisfactory results in order to position us for a return to profitability in 2003,” said joint CEO Oswald Grübel.
“Overall at the end of the year we will have hopefully a reasonable profit,” he added.
The results were in stark contrast to Switzerland’s largest bank, UBS, which last week reported a net profit for 2002 of SFr3.535 billion ($2.58 billion).
“CS seems to have underperformed compared to UBS across the board,” said Vasco Moreno, chief financial analyst at investment bank Fox-Pitt, Kelton in London.
“It is certainly losing market share to its competitors.”
Markets had braced themselves for an expected CS Group loss of at least SFr3.4 billion.
Winterthur
However, one of the heaviest weights dragging on the bank’s efforts to return to profitability remains its Winterthur insurance business.
In 2002, the ailing insurer sucked some SFr3.7 billion in capital from its owner.
In addition to shoring up its capital base, CS is now streamlining Winterthur’s central management with the merger of its insurance and life & pensions divisions. The move will see 350 jobs go at its headquarter in Winterthur.
“With the timely implementation of the new organisational structures as well as the measures already implemented, Winterthur has created an excellent basis from which to return to profitability,” said Grübel, CEO of Credit Suisse Financial Services.
Restructuring
All eyes will now be on joint CEOs Grübel and John Mack. The pair have tackled the group’s costs aggressively, slashing jobs and unprofitable divisions.
Mack, CEO of Credit Suisse First Boston, is responsible for liquidating some 6,000 jobs and shaving around SFr4.4 billion in costs since taking over at CSFB in mid-2001.
Mack said on Tuesday that CSFB, which posted a net loss of SFr1.9 billion for 2002, remained on course to achieve further cost reductions of SFr680 million a year.
But attention will now focus on whether the team can revitalise the banking group’s revenues in 2003.
“2003 will be the year of proof for CS Group,” says Zurich Cantonal Bank analyst Christoph Ritschard.
For now, emphasis at CS is on caution – so much so that the finance chief Ryan shied away from making any predictions about a first quarter profit.
“I know everybody in the industry is being teased for being completely non-committal. But in this environment and with the tremendous scrutiny of regulators it is hard to go out on a limb and be clear about what we see,” he said.
Lingering hangover
Many of the CS Group’s current woes can be traced back to the 1990s boom years when the bank’s leadership pursued an aggressive expansion strategy, taking on well-heeled investment bankers on Wall Street.
It also tended to take bigger risks than its more steady rival UBS, paying top dollar for takeovers.
Asked about the bank’s approach to risk-taking, Mack said CS in the 1990s resembled a “big casino”.
Many analysts are hoping the group has finally turned the corner and can return to profitability in 2003.
But with the worst market downturn in a generation showing little sign of letting up, CS may have very little room to generate growth in 2003.
Global investors remain deeply uneasy about equities, while the world’s private banking industry continues to struggle at a time of fierce competition.
Bad press
Nonetheless, investors will be hoping this year will see the bank lose its ability to generate negative headlines.
CS shares have lost more than nine per cent of their value this year, after shedding more than half of their value in 2002.
A key area will be the group’s asset management division – which represents its core private banking business.
Compared with UBS’s private banking business, which continues to generate healthy revenues despite the lacklustre global economy, the CS Group looks like a poor cousin.
At the end of last year, UBS had over SFr2 trillion in clients’ assets. CS had just SFr1.2 trillion at the end of September.
swissinfo with agencies
The SFr3.3 billion net loss for 2002 is the worst in the company’s history. Credit Suisse blamed weak financial markets and a series of “exceptional items” for the slump.
The banking group was hit by legal exposure at its investment banking arm, Credit Suisse First Boston, relating to research analyst independence, certain IPO allocation practices, Enron and other related litigation.
However, the previously loss-making Winterthur insurance unit returned to the black in the fourth quarter, with a segment profit of SFr6 million.
Credit Suisse Group ranks 25th globally in terms of market value.
The banking group employs around 80,000 staff.
CS operates from over 1,000 locations in Switzerland and abroad, offering a wide range of banking and insurance products.
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