CS Credit Suisse Group

By Brian Blackstone 

ZURICH-- Credit Suisse Group AG posted a wider-than-expected fourth-quarter loss after paying a hefty settlement to resolve crisis-era mortgage-securities cases, but strong capital ratios and a strong start to 2017, fueled in part by the election of President Donald Trump, reassured investors.

The Swiss banking giant on Tuesday said its net loss was 2.3 billion Swiss francs ($2.3 billion) for the last three months of 2016, compared with analysts' expectations of a 2.04 billion franc loss. For the same period of 2015, Credit Suisse posted a loss of 5.8 billion francs attributed to restructuring costs as it pulled back from investment banking. For 2016 as a whole, the bank posted a loss of 2.4 billion francs.

Still, Credit Suisse offered an upbeat assessment for early 2017 for its wealth-management and investment-banking units.

"We're off to a good start," Credit Suisse Chief Executive Tidjane Thiam said at a news conference, referring to activity in January and early February. "Clearly some of that is linked to the outcome of the [U.S.] election," he said.

He noted that hopes for fiscal stimulus in the U.S. have shifted market expectations. Typically a percentage-point parallel shift in the yield curve--meaning higher yields across maturities--adds half a billion francs to the group's earnings, he said.

Investors appeared to shake off last quarter's litigation-driven loss and focus on the upbeat outlook and strong capital ratios, with shares rising 3% in morning trading. The bank's key capital ratio stood at 11.6% last quarter, down slightly from the third quarter but a smaller drop than analysts had feared.

"Capital ratios were much better than expected," said analysts at Vontobel. "Trading in January was solid. However, this usually is one of the best months of the year," they said.

Credit Suisse offered new details of its cost-cutting strategy, saying it is targeting job cuts of 5,500 this year, which should help reduce its expenses to under 18.5 billion francs by the end of 2017.

In December, the bank reached a settlement worth roughly $5.3 billion with the U.S. Justice Department over toxic mortgage securities sold before the financial crisis. This included a $2.5 billion penalty and consumer relief payments of $2.8 billion over the next five years.

The fourth-quarter results included net litigation expenses of 2.2 billion francs, reflecting the settlement with U.S. authorities. The agreement removes "a major source of uncertainty for our future," Mr. Thiam said.

Its revenue for the quarter was 5.4 billion francs, and totaled 21.6 billion francs for 2016, a 7% drop from the previous year.

Credit Suisse said it suffered 6.7 billion francs in net asset outflows in the last three months of 2016, a result of the closure of a joint venture and of a flurry of clients either belatedly declaring their Swiss accounts to tax authorities or moving undeclared funds elsewhere.

Swiss rival UBS Group AG recently reported its own heavy outflows for the final quarter of last year. The billions of dollars in outflows for both firms came as Switzerland geared up for an international information exchange program designed to expose hidden Swiss accounts to authorities in several countries.

That program got under way at the beginning of this year. In addition, a number of countries in regions including Latin America have recently kicked off amnesty programs aimed at encouraging clients with offshore accounts to disclose them.

Credit Suisse cited particularly significant outflows related to clients in Latin America and Southeast Asia.

Mr. Thiam said that uncertainties remain despite the strong start to 2017, citing French elections this spring.

For now, however, the bank is seeing "almost a sweet spot" with a revival in the market for initial public offerings and strong activity in debt markets, he said.

Mr. Thiam said an IPO of the bank's Swiss unit is planned for the second half of 2017.

John Letzing contributed to this article.

Write to Brian Blackstone at brian.blackstone@wsj.com

(END) Dow Jones Newswires

February 14, 2017 06:40 ET (11:40 GMT)

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