By John Letzing
ZURICH--Credit Suisse Group AG managed to reported a surprise
profit for the third quarter, though investors were discouraged by
the Swiss bank's struggle to maintain profitability amid a
continuing overhaul.
Zurich-based Credit Suisse said Thursday its net profit in the
quarter was 41 million Swiss francs ($42.2 million), compared with
779 million francs in the same period last year. Net revenue fell
10%, to 5.4 billion francs. Analysts had expected a net loss of 174
million francs and revenue of 5.1 billion francs.
Investors seemed unimpressed, however, and traded the bank's
shares down nearly 4%. Morgan Stanley analysts zeroed in on Credit
Suisse's 0.4% return on tangible equity in the quarter, down from
8.9% in the same period last year. The profitability measure
suggests the bank still has a "long way to go," they wrote in a
research note.
Daniel Regli, a MainFirst analyst, noted that Credit Suisse's
results follow a series of upbeat reports from rivals, which may
have raised the bar. "Most of the banks were able to surprise
positively, so I think the market already assumed Credit Suisse
would follow," he said. In particular, Credit Suisse's investment
bank debt trading result likely fell short of expectations, the
analyst added.
Credit Suisse began a broad strategic shift under Chief
Executive Tidjane Thiam to limit investment banking and focus more
on its wealth-management businesses roughly one year ago, just as
markets were souring and clients began to hold back on investments
and trades that can generate fees for the bank. Meanwhile, low and
negative interest rates have continued to curb revenue growth for
the banking industry more generally, forcing lenders to rely on
cost cuts rather than sales increases.
Credit Suisse said Thursday will likely suffer from markets that
are undercut by geopolitical and economic uncertainty for "the next
several quarters."
Total operating expenses rose 2% in the third quarter compared
with the same period last year, Credit Suisse said, as the bank
incurred costs tied to its restructuring. On an adjusted basis, its
operating cost base fell 2%. General and administrative expenses
fell 6%, the bank said, while commission expenses fell 23%.
Credit Suisse said it has now cut 5,400 jobs, including
contractors, of the 6,000 planned as part of its restructuring.
Overall head count in the quarter fell 1% compared with the same
period last year, the bank said.
Analysts have expressed doubts about the bank's ability to
comfortably maintain its capital cushion, and have speculated about
a possible need for another capital raise. Credit Suisse raised 6
billion francs in fresh capital last year, shortly after Mr. Thiam
took over as CEO.
The bank said on Thursday that its key capital ratio stood at
12% in the third quarter, up from 10.2% in the same period last
year. The most recent figure was helped by a 346 million francs
gain tied to the sale of real estate, Credit Suisse said.
The gain resulted from the sale last August of a historic
building near Credit Suisse's headquarters on central Zurich's
Bahnhofstrasse--one of several real estate divestments made in
recent years, as the bank seeks to slim down.
Credit Suisse's Switzerland-based unit reported a 90% gain in
pretax profit in the quarter compared with the period last year, to
758 million francs, as net revenue rose 22%. The result was helped
by gains from selling real estate and a 5% decline in operating
expenses.
As Credit Suisse has come to rely more on its wealth-management
operations, it has also actively flushed some assets out by
pressing clients to disclose undeclared funds to their local tax
authorities and pay related taxes and penalties.
Partly as a result of that exercise, net new assets for the
Swiss unit's private banking division fell sharply, to 200 million
francs from 3.1 billion francs in the period last year.
Pretax profit for Credit Suisse's business in Asia fell 6% in
the quarter compared with the period last year, to 152 million
francs. The unit, which is a focus for Credit Suisse's intended
growth in wealth management and has been bulking up on private
bankers, received 4.6 billion francs in net new assets in the
quarter, compared with 3.7 billion francs in the period last
year.
Credit Suisse's International Wealth Management unit reported a
24% increase in pretax profit in the quarter compared with the same
period last year, even as net revenue fell 1%.
As Credit Suisse shifts focus away from its investment bank, it
has tried to sell unwanted investment bank assets via a so-called
strategic resolution unit. The unit shed $3 billion in
risk-weighted assets in the quarter--marking an overall $20.3
billion reduction, to $54.9 billion, since the same period last
year. The unit posted a quarterly pretax loss of 852 million
francs.
The Global Markets unit, Credit Suisse's investment bank trading
business that accumulated about $1 billion in unexpected losses
disclosed earlier this year, reported pretax profit of 87 million
francs for the third quarter, down 67% from the same quarter last
year. Net revenue fell 14%, while operating expenses fell 2%.
Write to John Letzing at john.letzing@wsj.com
(END) Dow Jones Newswires
November 03, 2016 05:38 ET (09:38 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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