Significant client asset outflows at Credit Suisse Group AG in the first quarter highlight the challenge facing UBS Group AG as it looks to integrate its Swiss rival.
Credit Suisse booked CHF61.20 billion of net asset outflows during the three-month period, with outflows concentrated in the second half of March — the trend had not reversed as of April 24, the bank said in its earnings release. The troubled bank was acquired by UBS in a government-engineered rescue over the weekend of March 18–19.
Credit Suisse said deposit outflows represented 57% of net asset outflows at its wealth management and Swiss bank divisions. The outflows underscore its "challenged position" and the scale of work ahead for UBS, RBC Capital Markets said in an April 24 research note.
The client asset flow trend over the coming quarters will be key, Elisabeth Rudman, global head of financial institutions at DBRS Morningstar, told S&P Global Market Intelligence.
"There will inevitably be some further outflows, and the question is how quickly that can be reversed," Rudman said.
Assets under management in Credit Suisse's flagship wealth management division dropped to CHF502.5 billion in the first quarter, down from CHF540.5 billion in the fourth quarter of 2022. First-quarter asset outflows in the division amounted to CHF47.1 billion, compared to CHF92.7 billion in the previous three months.
The wealth division's annualized net margin — which measures pretax profit against average assets under management — expanded to negative 108 basis points from negative 5 basis points quarter over quarter. The decrease "mainly reflected higher total operating expenses, driven by the goodwill impairment charge in [first-quarter 2023], and lower net revenues," the bank said in its earnings release.
Credit Suisse declined to comment beyond the official earnings statements.
Credit Suisse's results were affected by the controversial write-down to zero of about CHF15 billion of its additional Tier 1 notes as part of the UBS merger. Such instruments can be converted to equity or written off completely in the case of certain viability events. Due to the write-down, Credit Suisse booked a net profit attributable to shareholders of CHF12.43 billion and net revenues of CHF18.47 billion. Adjusted for the effect, the group booked a net loss before taxes of CHF1.32 billion and net revenues of CHF2.73 billion.
Attention on UBS
The Credit Suisse outflows raise questions about future revenues at UBS, as fewer client assets reduce the opportunity for banks to generate fee income. UBS will release its first-quarter earnings statement April 25.
Excluding Credit Suisse, UBS' revenues are expected to have declined year over year in the first quarter, according to analyst consensus estimates provided by the bank itself.
"It is also important to see how UBS performed in this first quarter, as we could assume a flight to safety in terms of deposits," Vitaline Yeterian, senior vice president for global financial institutions at DBRS Morningstar, told S&P Global Market Intelligence.
UBS faces significant execution risks from the Credit Suisse integration. The bank, which brought back Sergio Ermotti as CEO to lead the integration, plans to implement what Chairman Colm Kelleher has described as a "culture filter" in taking in staff.
UBS was not immediately available for comment.