By Stefania Spezzati and Noele Illien
LONDON (Reuters) - UBS said it is still reviewing potential misstatements in Credit Suisse (SIX:CSGN)'s financial reports and talks with regulators to address the issue are ongoing.
The bank said on Thursday in its annual report that there is a risk that "a material error" may not be detected by UBS and could result in a material misstatement to Credit Suisse's reported financial results which are now merged with UBS's.
In February, UBS said it was examining "material weaknesses" in Credit Suisse's internal controls for 2021 and 2022 that the U.S. Securities and Exchange Commission (SEC) and PricewaterhouseCoopers (PwC), Credit Suisse's auditor, had previously raised flags on.
A "material weakness" in how Credit Suisse reported its numbers could signal a significant misstatement in the financial statements.
Since the rescue of its Swiss rival last year, UBS has reviewed the processes and systems which caused the material weaknesses and the remediation program undertaken so far, the bank said in its annual report.
"This review is ongoing, and UBS expects to adopt and implement further controls and procedures following the completion of such review and discussions with regulators," it added.
Before its rescue, Credit Suisse and the U.S. authorities had engaged in a months-long debate over the severity of reporting deficiencies, Reuters has reported. It led the Swiss bank to delay its annual report in March last year.
The U.S. authorities were questioning how Credit Suisse had booked a series of cash flows under Credit Suisse's former chief financial officer David Mathers, including share-based compensation, and whether the issues needed to be further escalated.
The SEC had already asked Credit Suisse to look into certain valuation issues in the summer of 2022.
In mid-March last year, Credit Suisse finance director Dixit Joshi, who succeeded Mathers in late 2022, told U.S. regulators that Credit Suisse's control deficiencies had "remained un-remediated for several years" and that the bank was reassessing the issues.
A week later, the bank imploded, and the issues landed on the desk of UBS's chief executive officer Sergio Ermotti.
Credit Suisse 2022 annual report also contained explicit warnings from its auditor PwC on the effectiveness of the bank’s internal controls over financial reporting for that year.
UBS said that, as of the end of December 2023, its own internal control over financial reporting was "effective" and that the bank has excluded Credit Suisse from the scope of its assessment in agreement with SEC's rules.
UBS didn't say when it expects to complete its review.