13 Feb, 2023
Credit Suisse's liquidity position falls to lowest since 2015 as outflows bite
Credit Suisse Group AG's liquidity coverage ratio sunk to its lowest level in more than seven years at the end of 2022 as the Swiss bank grappled with unexpectedly high client outflows.
The liquidity coverage ratio, or LCR — a measure of the share of highly liquid assets held by a bank to ensure its ability to meet short-term obligations — hit a three-month average of 144% at the end of 2022, down from 192% three months earlier and its lowest level since the fourth quarter of 2015, S&P Global Market Intelligence data shows.
The bank had worse-than-expected asset outflows of CHF92.7 billion in the fourth quarter, driven by doubts about its risk management following a series of costly missteps. Many outflows took place in October as markets nervously awaited details of its new restructuring. Since then the LCR has improved, the bank said on a Feb. 9 earnings call.
'Decisive steps' needed
The asset outflows, along with deposit outflows, "put significant strain on substantially pressured liquidity," Suvi Platerink Kosonen, an analyst at Dutch bank ING, wrote in a note. Although Credit Suisse raised equity in 2022, a significant change in client behavior is still required to protect its franchise, the analyst said.
The sharp LCR decline also underscored the "importance of further decisive steps" by Credit Suisse's management, S&P Global Ratings said in a bulletin.
To curb the outflows, the bank has initiated an outreach program, and CEO Ulrich Körner said client support has thus far been "overwhelming." There had been inflows in January, Körner said.
The LCR has also continued to improve since the beginning of the year, CFO Dixit Joshi told analysts on the earnings call.
"The disciplined execution of our strategy […] should lead to further liquidity improvements and more efficient liquidity management across the group," Joshi said.
A "sensible and adequate" long-term LCR target has not been set yet for the new post-restructuring Credit Suisse, Körner said. The current LCR level compares favorably to peers, the CEO said.
Near all-time low
Credit Suisse posted a full-year 2022 loss of CHF7.29 billion, its worst annual loss since the global financial crisis, and it warned of another "substantial" loss for 2023.
Shares closed at CHF2.77 apiece on Feb. 9, more than 14% below their previous-day close and near an all-time low of CHF2.70 in December 2022.
In order for earnings downgrades to abate, and for its shares to rerate, the bank must exhibit that it has stabilized the outflows and is being more transparent about its restructuring plans, RBC Capital Markets analysts said in a Feb. 10 note.
