Credit Suisse Finds ‘Material Weakness’ in Reporting Since 2021

(Bloomberg) — Credit Suisse Group AG said it is adopting a new plan to fix “material weaknesses” in its reporting and control procedures for the past two years, following a fresh review of its financial statements prompted by concerns raised by US regulators last week.

Most Read from Bloomberg

For 2021 and 2022, “the group’s internal control over financial reporting was not effective,” Credit Suisse said in its annual report released Tuesday. “Management has also accordingly concluded that our disclosure controls and procedures were not effective.” The material weaknesses identified relate to the failure to design and maintain effective risk assessments in its financial statements, the bank said.

The reassessment of the bank’s internal controls comes in parallel to an “adverse opinion” issued by accountancy firm PwC on the effectiveness of the group’s internal controls. The bank said that, nevertheless, its statements for the years 2022, 2021 “fairly present” its financial condition.

Credit Suisse was forced to delay the release of its annual report from last week after the Securities and Exchange Commission raised last-minute queries on cash-flow statements from 2019 and 2020, discussions which the bank said have now been concluded. Chief Executive Officer Ulrich Koerner is attempting to push through a complex restructuring in a bid to return the bank to profitability, a process now at risk of becoming bogged down in a broader financial-sector selloff linked to US lender Silicon Valley Bank.

Read More: Credit Suisse Shares Drop After SEC Query Delays Annual Report

Government bonds jumped as the announcement added to concern about stress in the banking sector and boosted demand for haven assets. US Treasury two-year note yields fell as much as 15 basis points to 3.82% after earlier climbing to 4.19%. Futures on the S&P 500 Index erased a gain of as much as 0.6%. Credit Suisse shares dropped almost 10% on Monday.

The bank said the material weaknesses played a part in the revisions it had to make a year ago to some past years’ statements. Credit Suisse said its efforts to address the issue “could require us to expend significant resources to correct the material weaknesses or deficiencies.”

In 2021, Credit Suisse suffered a multi-billion dollar hit linked to Archegos Capital Management, the family office linked to investor Bill Hwang. It subsequently issued a report that identified procedural deficiencies leading to the debacle. The bank has also completely reshuffled top management since then and is on its second re-boot plan in as many years.

Fee Waiver

In the compensation report released Tuesday, the bank said Chairman Axel Lehmann is forgoing a payment of 1.5 million Swiss francs ($1.6 million) for his first full year on the job, following the lender’s worst annual performance since the 2008 financial crisis.

Lehmann, who took up the role in January 2022, will not receive the standard fee that’s usually paid on top of board members’ salaries, according to the bank’s compensation report published Tuesday after a delay of several days due to a last-minute query by US regulators.

Lehmann was allocated compensation of 3 million francs for the period from April 2022 to April 2023, and plans to propose taking lower total pay of 3.8 million francs for the following pay period at the annual shareholder meeting. The bank is also planning to increase the portion of the chairman’s compensation that is paid in shares to 50% from 33%.

In waiving his fees, Lehmann mirrors executive-board members who are not receiving a bonus for last year when the lender suffered record outflows of client funds and a slump in its share price amid concerns over its restructuring plans. The bank cut its 2022 pool for all employees by about half, setting aside only 1 billion francs, down from 2 billion francs the prior year.

Koerner’s total compensation for 2022 totaled 2.5 million Swiss francs, including for the period as an Executive Board member before becoming CEO.

–With assistance from Paul Dobson.

(Updates with markets in fifth paragraph)