Credit Suisse has admitted to “material weaknesses” in its financial controls as it released its annual report released on Tuesday. The report acknowledged that “the group’s internal control over financial reporting was not effective” and “management has also accordingly concluded that our disclosure controls and procedures were not effective.” On Tuesday, Credit Suisse shares took a hit after the release of its delayed annual report, which revealed “material weaknesses” in its balance sheet over the past two years.
The report also acknowledged the bank’s biggest annual loss since the 2008 financial crisis, with customer withdrawals surging in the fourth quarter of last year. Credit Suisse’s problems began well before the current banking crisis, with the stock price dropping over 80% since March 2021. However, fears that the U.S. banking crisis could go global have been exacerbated by the bank’s troubles.
Credit Suisse said in a statement:
“The material weaknesses that have been identified relate to the failure to design and maintain an effective risk assessment process to identify and analyze the risk of material misstatements in its financial statements and the failure to design and maintain effective monitoring activities.”
Credit Suisse, the world’s eighth-largest investment bank and provider of private banking services, has admitted to “material weaknesses” in its financial controls in its annual report released on Tuesday. The report revealed that the bank’s internal and disclosure controls over financial reporting as of December 31, 2022 and 2021 were not effective. The bank’s share price fell to an all-time low of 5% during early trading in Europe as it struggles to retain its customers following a string of scandals. Credit Suisse has been in breach of liquidity buffers as customer outflows surged to more than $120bn in the fourth quarter of last year.
The release of the annual report was delayed last week after the US Securities and Exchange Commission requested revisions to cash-flow statements for 2019 and 2020. The bank said that the “material weaknesses” identified related to the failure to design and maintain an effective risk assessment process to identify and analyze the risk of material misstatements in its financial statements and the failure to design and maintain effective monitoring activities.
The disclosure has spooked investors and could cause a run on deposits, similar to the one that caused the collapse of Silicon Valley Bank last week. Credit Suisse has insisted that withdrawals have slowed since it boosted interest rates for deposits, but no bank can withstand a panic-driven run on deposits because much of the money depositors demand is invested. In Silicon Valley Bank’s case, billions were invested in long-term US Treasury bills and corporate bonds, which lost value as the Federal Reserve aggressively raised interest rates in an effort to fight inflation.
Investor Robert Kiyosaki, author of the best-selling book “Rich Dad, Poor Dad,” predicted that Credit Suisse would be the next bank to go, citing the crashing bond market. Bank stocks have been hammered since last week’s collapse of Silicon Valley Bank and the smaller, New York-based Signature Bank. The current banking crisis has caused widespread concern that it could become a global issue, with the potential to affect banks and economies worldwide.
However, Credit Suisse CEO Ulrich Koerner has looked to quell doubts, saying the bank’s SVB credit exposure is not material. The bank is considered to be more highly regulated than SVB in the US and is “conservatively positioned against any interest rate risks”, according to insiders.