Bank Finds ‘Material Weaknesses’ in Financial Reporting, Cuts Executive Bonuses

The logo of Swiss bank Credit Suisse at an office building in Zurich, Switzerland, on Sept. 2, 2022. Arnd Wiegmann/Reuters

Credit Suisse on March 14 reported finding “material weaknesses” in financial reporting procedures after U.S. authorities inquired about potential issues.

PricewaterhouseCoopers AG, which audited the Switzerland-based bank, identified a failure to “design and maintain an effective risk assessment process to identify and analyze the risk of material misstatements,” Credit Suisse said in its annual report.

The weaknesses “could result in misstatements of account balances or disclosures that would result in a material misstatement to the annual financial statements of Credit Suisse ... that potentially would not be prevented or detected,” the firm said.

Financial statements as of Dec. 31, 2022, though, were said to be reviewed and deemed to comply with Swiss law.

The publication of the annual report was delayed earlier in March after the U.S. Securities and Exchange Commission (SEC) called Credit Suisse about certain information in reports for 2019 and 2020, according to Credit Suisse.

The delay was implemented “to appropriately deal with questions the SEC had,” Credit Suisse CEO Ulrich Korner said on Bloomberg TV.

“We acknowledged that we have a material weakness in the financial reporting control, which we are addressing and remediating forcefully,” he added.

Credit Suisse’s Board of Directors and Executive Board “are developing a remediation plan to address the material weakness,” according to the annual report, “including strengthening the risk and control framework.”

Customers Withdraw Funds

Customers have withdrawn billions from Credit Suisse in recent months, including $120 billion in the fourth quarter alone.

Credit Suisse has struggled to maintain investor confidence amid an investigation into a data leak, which saw information about thousands of former clients placed online.

The outflows have not ceased, the firm said in its annual report.

While the outflows “stabilized to much lower levels” by the end of the year, they had “not yet reversed,” the report stated.

Credit Suisse stock dropped after the report was published, though it had rebounded partly around midday.

Executive Bonus Waived

Because of the financial issues, a major bonus is not being given to Board Chairman Axel Lehmann.

“Given the poor financial performance in 2022 and challenging situation for the firm,” Lehmann proposed to “voluntarily waive” his bonus of $1.6 million, the company said in a separate filing to the SEC.

The board accepted the proposal.

Lehmann’s annual total compensation was also being lowered from $4.9 million to $4.1 million after a “benchmarking analysis of board chair pay at leading Swiss companies.”

Executive board members also saw no bonuses while the pool for employee bonuses was halved.

Plan Being Executed

Credit Suisse said in the fall of 2022 that it was slashing 2,700 jobs in the short term and planned to cut the workforce by 9,000 by the end of 2025.

The firm said at the time it was going to implement a plan that it hoped would result in a “more focused and more stable bank built around client needs.” The strategy included focusing more on managing wealth for clients.

Korner lamented the drop in stock price, which is down nearly 100 percent since a high in 2007, but said the company is still executing the plan.

“This is a three-year process, and we’re executing,” he said. “The market will acknowledge that, and share price will follow.”

“We said it’s a three-year transformation,” he added. “And you can’t come after two months and say, ‘Look, why is not everything done.’”