Morning Update

Credit Suisse have revealed that they experienced SFr61.2bn of client outflows in Q1, demonstrating the scale of the bank run which brought investors and policy makers around the world to the edge of their seats. This included Credit Suisse’s wealth management unit loosing 9% of its assets over the quarter meaning that the division had 29% less than the same period in 2022. The 167-year old bank added that “These outflows have moderated but have not yet reversed as of April 24, 2023” and these figures underline the scale of the challenge that UBS now has in shoring up their former rival. Indeed, one analyst told the BBC’s Today programme “If anything today we’ve got confirmation of what UBS has bought.”

Credit Suisse’s latest report also notes that the bank had an adjusted pre-tax loss of SFr1.3bn for Q1 and a net income of SFr12.4bn over the period. Its important to note however that this net income figure was helped by the controversial writing off of $17bn of Credit Suisse’s Additional Tier 1 (AT1) bonds. These AT1 bonds are a fixed income instrument which were created in the wake of the 2008 crash to try to ensure that in the event that a bank went into distress, losses were absorbed by the principals of some bond holders to try to mitigate against the need for bail outs. While AT1s are subordinated to other forms of debt, they rank higher than preferred equity and common equity. Hence, when it was announced that $17bn of Credit Suisse’s AT1 bonds were written off while at the same time shareholders were set to receive CHF3 billion in an all-share merger, investors worried over an unsettling of the conventional hierarchy of lenders protection. Given that the global market for AT1 bonds stands at around $275bn, this unsettling led to a risk off move as markets weighed on whether the Swiss authorities had created a potentially dangerous precedent in the AT1 market, and bond market more generally.

All eyes are now on UBS’s first quarter results which are released tomorrow morning.