Credit Suisse said it had identified “material weaknesses” in its internal controls over financial reporting, the latest blow to a bank battling to revive its fortunes.

In its annual report on Tuesday, Credit Suisse said “management did not design and maintain an effective risk assessment process to identify and analyse the risk of material misstatements in its financial statements”.

The bank said its full-year 2022 results, when it reported its biggest annual loss since the financial crisis, were unaffected.

Credit Suisse had been forced to push back the publication of the annual report from last week after receiving a last-minute call from the US Securities and Exchange Commission relating to cash flow statements going back three years, which it described as “technical”.

Chief executive Ulrich Körner said at the Morgan Stanley European Financials conference on Tuesday that the feedback from the SEC was part of “longer dialogue” between the two parties over the issue.

“We are, as you would expect from us, addressing very forcefully with the appropriate actions,” he added.

The findings come at a difficult juncture for the bank that has lurched from crisis to crisis in recent years, resulting in heavy losses. Its share price fell 4 per cent in early trading on Tuesday to SFr2.166, leaving it down more than 20 per cent this year and more than 80 per cent over the past two years.

The spread on five-year Credit Suisse credit default swaps hit a record 522 basis points on Tuesday, having previously spiked at 350 bps in October.

Much of the recent rise in Credit Suisse CDS spreads — which indicate investor bearishness — happened earlier in the week, as fears of contagion from the collapse of US lender Silicon Valley Bank spread to European companies.

On Tuesday, Korner said Credit Suisse’s credit exposure to SVB was “not material”.

The flaws in the bank’s internal controls were first identified by its auditor, PwC, according to a person with knowledge of the matter. The bank’s management team agreed with the assessment and decided to make changes to the process.

The SEC intervened last week asking the bank to double-check that the weaknesses did not have any bearing on the financial results, the person added.

The query related to cash flow restatements going back to 2019 in relation to the netting treatment of some securities lending and borrowing activities. This resulted in balance sheet and cash flow positions being understated.

In a separate statement on Tuesday, PwC said that “management did not design and maintain effective controls over the completeness and the classification and presentation of non-cash items in the consolidated statements of cash flows”.

Credit Suisse said its management team was developing a remediation plan to address the weakness, which included “strengthening the risk and control frameworks, and which will build on the significant attention that management has devoted to controls to date”.

“Additionally, we will implement robust controls to ensure that all non-cash items are classified appropriately within the consolidated statement of cash flows,” it added.

Last year, Credit Suisse replaced its longtime chief financial officer David Mathers with former Deutsche Bank treasurer Dixit Joshi. All but one of the bank’s executive board has been replaced in the past two years.

Alongside the disclosure of the weakness in controls, Credit Suisse said chair Axel Lehmann would waive his SFr1.5mn ($1.6mn) annual chair’s fee for 2022 in light of the group’s poor financial performance, though he retained his SFr3mn board fee. Since becoming chair just over a year ago, the group’s shares have plunged 75 per cent.

Last week Finma, the Swiss regulator, closed its investigation into comments made by Lehmann about customer outflows, saying there were no sufficient grounds for supervisory proceedings.

The bank also confirmed a plan to grant senior managers equity in its CS First Boston investment banking arm, which is due to be spun off as part of a radical restructuring designed to return the bank to profit. Staff could own up to 20 per cent of shares in the venture, which would vest over three years after a planned initial public offering.

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