Credit Suisse, one of Switzerland's largest banks, has identified "material weaknesses" in its internal controls over financial reporting, according to its 2022 annual report published on Tuesday. The bank has not yet stemmed customer outflows, and auditor PwC included an "adverse opinion" on the effectiveness of the bank's internal controls over its reporting. However, PwC also stated that the bank's financial position was presented "fairly, in all material respects" for 2020 through 2022.
The news comes as Credit Suisse is trying to recover from a series of scandals that have shaken the confidence of investors and clients. Customer outflows in the fourth quarter of 2022 rose to over CHF 110 billion ($120 billion). The bank said that outflows had stabilized to much lower levels but had not yet reversed.
As a result, the bank's shares fell more than 3%, before paring losses to trade down 1.55% as of 1152 GMT. The cost of insuring against a Credit Suisse debt default rose to a record above 520 basis points, according to S&P Global Market Intelligence.
The weaknesses in the bank's internal controls over financial reporting are concerning, especially considering Credit Suisse's recent history. The bank has been involved in several scandals, including the Archegos Capital Management debacle, which cost the bank billions of dollars in losses. The bank has also faced legal action for its involvement in the fraudulent sale of supply chain finance funds to investors.
To address the latest issue, Credit Suisse said it is working on a "remediation plan" and will implement "robust controls to ensure that all non-cash items are classified appropriately within the consolidated statement of cash flows."
However, the news has led to renewed concerns about the stability of the banking sector as a whole. Banks around the world have been hit by a sell-off prompted by the collapse of two U.S. lenders last week that forced regulators to step in and guarantee deposits. The cost of insuring against a Credit Suisse debt default rose to a record above 520 basis points, according to S&P Global Market Intelligence.
It remains to be seen how Credit Suisse will address the weaknesses in its internal controls over financial reporting. However, the bank will need to act quickly and decisively if it hopes to restore the confidence of investors and clients.