Investors are skeptical that the Swiss bank is entirely free of an 11-year entanglement with U.S. officials over its conduct in the run-up to the financial crisis. Credit Suisse is signaling they are right to be suspicious.

The issue analysts fretted about most during Credit Suisse's results was not a fourth-quarter loss or even an abysmal showing from its wealth management arm. Instead, analysts kept probing the Swiss bank for clues about how dangerous an issue its dealings with residential mortgage-backed securities will be, even after a landmark settlement.

That settlement a lawsuit brought by MBIA over hundreds of millions of dollars the bond insurer paid out to compensate investors after scores of U.S. home mortgages failed in the 2008/09 crisis. On the hook with investors, MBIA in turn went after Credit Suisse for not adequately representing the securities packaged from the loans.

Analysts In The Dark

The fourth-quarter charge follows a $5.3 million fine to settle a criminal probe four years ago. CEO Thomas Gottstein and finance chief David Mathers were peppered with questions about Credit Suisse's past – and the duo signaled that the RMBS «docket» isn't over for the bank just yet. 

For example, analysts fretted over whether a consensus or their estimates for provisions this year and next is accurate: Credit Suisse reported 68 million Swiss francs ($76 million) for 2021 and 36 million francs for 2022. This year's estimates by analysts for legal provisions stood at 58 million francs – and Credit Suisse ended up at nearly 1 billion on the back of the settlement.

Pugnacious Approach

In other words, RMBS is a bit of a Pandora's box of many moving parts for analysts, who want clarity from the bank. They didn't get it: Gottstein and Mathers were perhaps unwilling to reveal too much for fear of jeopardizing their legal strategy. The RMBS problem dates back to 2009, when outgoing Chairman Urs Rohner was still Credit Suisse's chief lawyer but on his way to the board. 

A gifted trial lawyer, Rohner is known for orchestrating a pugnacious response to almost all probes the bank has been involved in. The approach has met with mixed success, as evidenced by a $2.6 billion landmark U.S. tax probe in 2014, for which the bank's obstinacy was called out by U.S. justice officials, to fighting its regulator on an investigation into corporate espionage.

«It Is What It Is»

Gottstein declined to comment on analyst consensus of provisions, while Mathers was sibylline: «It is what it is, it's a matter of fact, is clearly a number of other cases and other appeals going on around that. But that's why you see that balance, basically.»

What analysts are worried about is that Credit Suisse looks more entrenched in RMBS problems than other banks like J.P. Morgan or UBS, which have long since left the issue behind. Credit Suisse's RMBS woes go back 16 years – mainly form 2005 to 2007, just before the subprime crisis hit. The Swiss bank still faces legal action from a flotilla of disgruntled investors, as well as a probe from New Jersey's chief prosecutor, according to its annual report form 2019.

Prolongation Pays

Gottstein and Mathers were somewhat less tight-lipped about the strategy to prolong the fight: «If you look at the settlements that are reached in some of these cases by other banks, in the 2011, 2012 period, they were clearly a great deal higher than this ($600 million settlement). So I think it has been the right thing to do,» the veteran finance chief said.

The CEO agreed that the legal strategy orchestrated by Rohner at the time was «probably not the wrong strategy,» while conceding that more pain will follow. «These legal cases sometimes have their own timeline and their own dynamics,» Gottstein said.