It has been challenging for the market to digest the takeover deal hammered out over a frantic weekend in March - and come up with a valuation of Credit Suisse in UBS' hands. One of the missing pieces of the puzzle was the extent of the damage to the Credit Suisse franchise during the banking turmoil of the first quarter. The bulk of the client outflows was related to deposits in the wealth management business.
UBS will be pleased that the higher margin assets it invests on behalf of its wealth management clients held up reasonably well. Outflows from the Swiss bank and the asset management business were also relatively contained. Credit Suisse indicated that although flows have slowed, it has not turned around. Unsurprisingly Credit Suisse is guiding that it will remain loss making for the rest of the year. The CHF 300 million (£270 million) loss for the quarter in the good bank seems manageable especially if one considers that UBS intend to achieve CHF 8 billion of cost savings over time and wind down the problematic investment bank even further. Net interest margins suffered greatly as Credit Suisse had to access emergency liquidity and pay up for deposits. UBS will hope that its balance sheet strength will turn the margin erosion around quickly.
Credit Suisse reported net client outflows of CHF 61 billion for the first quarter of 2023; this represents 5% of assets under management reported at the end of 2022 and an improvement on the final quarter of 2022 when Credit Suisse saw net outflows of CHF 111 billion. Wealth management clients withdrew 9% of their funds, while the outflows in the Swiss bank (1%) and asset management (3%) were less pronounced. Customer deposits declined by 29% during the quarter.
Following UBS' results tomorrow, we will update our fair value estimate and moat rating for Credit Suisse. Credit Suisse shareholders will receive UBS shares as compensation, which ties its value to that of UBS.
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