Credit Suisse has set aside a further $850m for legal costs related to US residential mortgage-backed securities, pushing it to a fourth-quarter loss and dealing another blow to its attempts to move on from a turbulent 2020.
The move follows a November ruling in a case involving financial services group MBIA, which could result in a $680m judgment against Credit Suisse.
The bank said on Friday it believed it had strong grounds for appeal in the case. It has now set aside a total of $1.1bn to cover the costs of RMBS litigation that has its origins in the financial crisis more than a decade ago.
The lender said that because of this extra provision and a separate $450m impairment charge against the value of its holding in hedge fund York Capital Management, it would make a fourth-quarter net loss. York is winding down its European hedge fund business after years of disappointing returns.
The latest announcement is a blow to chief executive Thomas Gottstein, who told the Financial Times last month he wanted to start 2021 with a “clean slate” after a difficult year where his predecessor Tidjane Thiam was ousted over a spying scandal, the bank was caught up in alleged fraud at China’s Luckin Coffee and German payments company Wirecard having worked on deals for both, and its core wealth management revenues were hit by the pandemic.
The bank also faces a new Swiss federal prosecution after it allegedly processed more than SFr140m ($158m) of transactions between 2004 and 2008 for a clan of Bulgarian mafiosi engaged in cocaine smuggling. Credit Suisse has said it will “defend itself vigorously” against the charges.
“The drip-feed of negative news in the past two months has been unhelpful, but one would hope that Credit Suisse is now closer to drawing a line under this,” said Andrew Coombs, analyst at Citigroup. “While we think the 10 per cent return on equity ambition for 2021 is unlikely to be achieved, we do still think this is feasible in the medium term.”
Credit Suisse said trading in the final month last year was in line with the performance outlined in a strategic update in December. Fourth-quarter revenues at its investment bank were 15 per cent ahead of last year.
However, growth in its wealth management business in Asia failed to completely offset the hit to profits from the strengthening of the Swiss franc against other currencies and a decline in net interest income during the pandemic.
Citigroup estimates fourth-quarter revenues in that division will fall 8 per cent year on year; Andreas Venditti, analyst at Vontobel, forecasts an overall group net loss of SFr300m for the period.
Despite the extra provisions and lower income, Credit Suisse said it would push ahead with a share buyback scheme that would return up to SFr1.5bn to shareholders in 2021.
Shares in Credit Suisse fell 2.8 per cent on Friday morning, and are down 7.7 per cent over the past year, underperforming local rival UBS.
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