Credit Suisse's problems mount as lender warns on Q4 profit

© Reuters. FILE PHOTO: The logo of Swiss bank Credit Suisse is seen at a branch office in Zurich, Switzerland, November 3, 2021. REUTERS/Arnd WIegmann

By Brenna Hughes Neghaiwi

ZURICH (Reuters) -Credit Suisse warned on Tuesday that it was likely to make a net loss in the fourth quarter as the scandal-hit lender flagged fresh legal costs and said business in its trading and wealth management divisions had slowed.

"Profit for the fourth quarter 2021 will be negatively impacted by litigation provisions of approximately 500 million Swiss francs, partly offset by gains on real estate sales of 225 million Swiss francs," the embattled lender said in a statement, adding the legal hits primarily related to settlement of legacy cases from its investment banking business.

Combined with other charges, it said this was expected to result in a reported pre-tax income or loss of "approximately breakeven" for the fourth quarter.

Credit Suisse (SIX:CSGN) has been trying to turn the page on a slew of negative headlines and reform its risk management culture, an effort set back by the abrupt departure of the chairman brought in just nine months earlier to lead that transformation.

Switzerland's second-largest lender announced plans in November to rein in its investment bankers and plough money into looking after the fortunes of the world's rich as it tries to curb a freewheeling culture that has cost it billions in a string of scandals.

It said at the time it expected to take an impairment of 1.6 billion francs ($1.75 billion) in the fourth quarter on remaining investment banking-related goodwill on its books.

Credit Suisse said on Tuesday its investment bank would also be affected by a slowdown in transaction-based revenue.

"Combined with the reduction in our overall risk appetite, including our decision to substantially exit our prime services business, this has resulted in a loss for the fourth quarter 2021 in the Investment Bank division (before the goodwill impairment)," the lender said.

It said its core wealth management businesses, which it has been trying to shore up, would also be hit by a slowdown in transactions, resulting in "modestly negative" net new assets for those businesses, "albeit more than offset by inflows in our Asset Management business."

Major U.S. banks flagged last week that the huge uptick in trading volumes during the pandemic was starting to moderate as expectations for a series of U.S. interest rate hikes and a rise in consumer spending was tempering investment rates.

($1 = 0.9162 Swiss francs)