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Signaling problems admitted by Credit Suisse push equities lower

origin 1A general view of the Credit Suisse bank logo positioned on the main entrance to the bank’s branch in Frankfurt. Boris Roessler/dpa

Shares of Credit Suisse Group AG fell about 4% in Swiss trading on Tuesday after the big Swiss bank said it identified “substantial weaknesses” in its financial reporting in 2021 and 2022.

The shares also traded down 3% in pre-market activity on the New York Stock Exchange (NYSE).

The development comes as the global banking sector faces scrutiny following the failures of US banks Silicon Valley Bank (SVB) and Signature Bank, considered the biggest US bank failures since the 2008 financial crisis.

In its 2022 annual report, the Swiss lender said its internal control over financial reporting as of December 31, 2022 and 2021 was not effective. Disclosure controls and procedures were also not effective, he said.

Credit Suisse, which was originally due to release its 2022 annual report on Thursday, delayed the release following a delayed call from the US Securities and Exchange Commission (SEC).

The company then said the SEC’s call was related to some of the SEC’s open comments on the technical assessment of previously disclosed revisions to the consolidated financial statements for the years ended December 31, 2020 and 2019, as well as related audits.

In its annual report, the bank has now said, “the material deficiencies identified relate to a failure to design and maintain an effective risk assessment process to identify and analyze the risk of material misstatement in its financial statements and a failure to design and maintain an effective monitoring activity.”

The company said the material weakness led to the revisions contained in its previously released consolidated financial statements for the three-year period ended December 31, 2021.

Despite these material deficiencies, the bank has confirmed that its consolidated financial statements included in the report fairly present, in all material respects, its consolidated financial position as of December 31, 2022 and 2021.

Credit Suisse said it saw a significant increase in cash deposit withdrawals, non-rollover of maturing time deposits and net asset outflows in 2022.

According to the bank, these outflows have stabilized at much lower levels but had not yet reversed as of the date of this report. These outflows caused the company to partially use its cash reserves at the group and legal entity level, falling below certain regulatory requirements at the legal entity level.

SVB took a dramatic plunge on Friday after many customers withdrew their money, expecting the bank could fail in the near future.

In addition, Signature Bank was closed by US regulators following a significant outflow of deposits related to, among other things, contagion from the bankruptcy of SVB.

In Switzerland, Credit Suisse shares traded at 2.16 francs ($2.36), down 4.3%. In pre-market activity on the NYSE, the shares were shedding about 2.4% to trade at $2.48.