Credit Suisse strikes downbeat tone after FY'21 loss, weak start to 2022

Credit Suisse Group AG warned that restructuring costs and higher pay expenses would harm its 2022 results after it posted losses for fourth quarter and full year 2021.

Adjusted operating expenses in 2022 will likely be at the top end of guidance at about CHF17 billion, CFO David Mathers said Feb. 10 during an earnings call with analysts. This is largely owing to a CHF1 billion expected increase in compensation costs plus CHF700 million for investment plans this year. In 2021, the bank incurred CHF16.09 billion of adjusted costs.

The bank will embark on a "transition year" for 2022 as it tries to move past a slew of scandals in 2021 that have led to an annual net loss attributable to shareholders of CHF1.57 billion. As the bank warned in January, it booked a fourth-quarter 2021 loss, at CHF2.01 billion, dragged by litigation provisions and a goodwill impairment related to restructuring at its investment bank.

Sluggish start

Credit Suisse had a weak start to 2022, with the slowdown observed mainly in financing activities, but volatility has resulted in a recovery in trading lines, Mathers said during the call.

"I think we're all used to January starting very strongly, and that was not the case this year," he said.

Credit Suisse shares were down 4.9% at CHF8.80 apiece late morning in Zurich. They have lost 28.7% of their value in the last 12 months.

The fourth-quarter results show signs of "franchise erosion" compared with those of the bank's peers, JPMorgan analysts wrote in a Feb. 10 note. "In our view, [Credit Suisse] is currently being run for capital preservation and fulfilling regulatory requirements, not shareholder returns," they said.

Variable compensation down

The turbulent year led Credit Suisse to cut its variable compensation pool for 2021 by 32% to CHF2 billion from CHF2.9 billion for 2020. The most significant reduction was in the regular deferred awards component, which fell to CHF507 million from CHF1.44 billion.

Meanwhile, up-front cash awards, which can be clawed back if an employee resigns within three years, rose to CHF799 million from CHF59 million as the bank seeks to retain talent amid increasing demand.

The reduction in Credit Suisse's compensation pool comes as its wealth management peers, particularly in the U.S., have awarded bankers more. JPMorgan Chase & Co. and The Goldman Sachs Group Inc. have bumped up their bonus pool by as much as 40% and 50%, respectively, Reuters reported.

To cushion the impact, the bank will give a deferred one-off, share-based award totaling CHF497 million to most directors and managing directors. The final cost of the award could vary by up to 50% on the upside, but it could also be lower, depending on delivery against targets through 2024 and the discretion of the compensation committee, according to Mathers.

Further details will be provided in the bank's compensation summary March 10.