DANGER AHEAD: CREDIT SUISSE CUTS PROFIT OUTLOOK A THIRD TIME

On 8 June, Credit Suisse warned that it expects to post a loss for this quarter, as its investment banking division delivered weak results due to market volatility sparked by the Ukraine war, the end of COVID-era government stimulus programs, and central banks tightening monetary policies.

In January, the company said it would report a loss in 2021’s final quarter; in April, it said 2022’s first quarter also would be a money-loser.

The bank will see red ink this time because of “weak customer flows and ongoing client deleveraging, notably in the [Asia-Pacific] region,” in comments quoted by the Financial Times.

Fewer clients were issuing stock and bonded debt, leaving the company’s investment bankers with fewer fees to collect for structuring offerings.

The company’s share price dropped 6 percent on the announcement, sending the stock’s value down a total of about 20 percent below this year’s opening price.

Credit Suisse said it will shore up its profits by speeding its cost-cutting program, which is expected to include staff cuts and a hiring freeze in the investment banking operation.

“Similar to cost measures executed in the past, the consequence is likely to be a further erosion of staff morale and, therefore, another negative impact on revenues,” analyst Andreas Venditti at Vontobel Holdings, a Swiss private bank, said to the FT.

TREND FORECAST: The worst is yet to come, and it expands way beyond Credit Suisse. As reported by Wall Street on Parade:

“As of last Friday’s closing prices, five U.S. megabanks that constitute the core of the U.S. financial system have $300 billion less common equity market capitalization than they had one year ago on June 10, 2021.

“Citigroup, which has fared the worst of the lot in terms of percentage decline, is down 38 percent year-over-year with a market cap plunge of $56.6 billion. JPMorgan Chase’s share price is down 25 percent year-over-year but its market cap loss makes Citigroup look like a piker. JPMorgan Chase has seen its market cap evaporate by $120 billion in one year. That’s because it has a bizarrely large 2.94 billion shares outstanding that have been bleeding.

“Bank of America has lost 20 percent year-over-year with a market cap loss of $68.67 billion. Morgan Stanley is down 16 percent year-over-year for a market cap loss of $25 billion; and Goldman Sachs has given up 23 percent year-over-year with a market cap decline of $29.85 billion.

“The five megabanks that the Office of Financial Research says make up the core of the U.S. financial system have lost a combined $300 billion in market cap year-over-year and the Fed is still tightening monetary policy.

“But that’s not even the worst of the news. U.S. megabanks are heavily interconnected to foreign megabanks through trillions of dollars in notional derivatives. Despite the economic devastation in 2008 from derivatives, the Fed and Congress have continued to allow foreign megabanks to serve as counterparties to U.S. megabanks’ derivatives. (U.S. megabanks also serve as counterparties to each other’s derivatives.)