Credit Suisse Warns of Another Loss as Capital Recedes

Credit Suisse

CS 1.44%

Group AG warned its capital position is eroding and that it expects another quarterly loss from weak market conditions and lower earnings in its investment bank.

The Swiss bank said investment banking has been hit by companies opting not to sell new stock or bonds in volatile conditionswipe out a main source of revenue. It said the poor performance will push the division and the bank overall to a loss in the second quarter, for its third consecutive quarterly loss.

The warning of a loss this quarter is an early sign that the disruption in financial markets since Russia invaded Ukraine is hitting activity among big international banks.

In an admission of the tough times it faces, Credit Suisse lowered its target capital ratio to 13.5% in the near term, from 14%. The ratio slipped to 13.8% at March 31 from 14.4% at the end of December. Executives previously said the bank doesn’t need to raise fresh capital, and that the ratio would rise back over 14% later this year.

Without generating profit, the bank will struggle to generate fresh capital, which acts as a buffer, protecting the bank when loans turn sour. Investors worry it will need to raise more capital despite a depressed stock price and valuation. That would be a painful move for those betting on the bank’s turnaround.

It said it would speed up cost cutting plans and give more details at an investor day on June 28. The bank has said it would shave up to around $1.5 billion from costs by 2024 by centralizing technology and removing layers of managers.

More cost cuts could come from reducing teams in some of the hardest hit areas of Credit Suisse, people familiar with the matter said, in what could be a part of a broader cull across Wall Street if deals don’t pick up.

Credit Suisse stock slid as much as 7%. It later recovered and was up for the day after a Swiss website, Inside Paradeplatz, reported that

State Street Corp.

the US banking giant, was considering a bid for Credit Suisse.

A Credit Suisse spokesman declined to comment on the report. A State Street spokesperson didn’t immediately respond to a request for comment.

Credit Suisse is a leading player when it comes to helping companies raise funds from stock and bond markets. Its revenue is more volatile than some peers because it specializes in the riskier ends of corporate finance, such as making loans for leveraged buyouts.

The business of arranging those loans, as well as that for initial public offerings and blank-check companies, or SPACs, have all but dried up during the selloff in stock markets. Debt financing generally has also slowed as companies navigate rising interest rates and punishing levels of inflation.

The lender, which combines a global private bank catering to the rich with a Wall Street investment presence, has been in on-and-off restructuring mode since the financial crisis a decade ago but has remained encumbered by litigation and regulatory probes stemming from that period.

Its turnaround was hammered by a more than $5 billion cash loss last year from exiting stock positions of family office Archegos Capital Management. In addition to the financial loss, Switzerland’s financial regulator imposed additional capital requirements and heightened its supervision of the bank.

Credit Suisse lost the most among Wall Street lenders when the family office’s large stock positions imploded in March 2021, causing around $10 billion in losses across banks.

Archegos was the most prominent of a string of disasters to befall what has become Europe’s most scandal-prone bank. It has also suffered the collapse of financing partner Greensill Capital and saw the departure of his chairman in January for violating Covid-19 rules. In March, a Bermuda court imposed a $500 million judgment against the bank in a case brought by a disgruntled billionaire client.

The bank’s chairman, Axel Lehmann, told shareholders in April that Credit Suisse must do better in anticipating risks, and reconnect with its Swiss heritage risks and the values ​​of its entrepreneur founder Alfred Escher from 166 years ago.

That month, it said it would replace several top executives including its chief financial officer, in a continuing reshuffle.

Write to Margot Patrick at margot.patrick@wsj.com and Cristina Roca at Cristina.Roca@dowjones.com

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