Credit Suisse Posts Third-Straight Loss but Says Strategy Is Working
February 14 2018 - 03:47AM
Dow Jones News
By Brian Blackstone
ZURICH -- Credit Suisse Group AG posted its third-straight
annual loss Wednesday as the U.S. corporate tax overhaul forced the
Swiss banking giant to write down over $2 billion in deferred-tax
assets.
The bank was upbeat on its outlook, with Chief Executive Tidjane
Thiam saying that "our strategy is working" as it enters the final
year of a three-year restructuring plan. Its pretax income for
2017, excluding that one-time hit, jumped from the previous year on
strong revenue growth in its wealth management arm.
But the bank reported a loss of 2.1 billion Swiss francs ($2.3
billion) in the fourth quarter and 983 million Swiss francs for the
full year due to the changes in the U.S. tax system.
Its fourth-quarter and 2017 losses were less than analysts had
expected. Analysts had expected a fourth-quarter loss of 2.3
billion Swiss francs and a 1.1 billion loss for the full year.
Credit Suisse disclosed in December that it expected a $2.3
billion hit from the value of its deferred tax assets -- past
credits and deductions that companies can use to offset future tax
payments. The new U.S. corporate tax rate -- lowered to 21% from
35% -- makes these assets less valuable. Last month, UBS Group AG
wrote down $2.9 billion in these assets.
The bank also signaled that it expected a long-term lift from
the reduction in the U.S. corporate rate, citing a "positive
business uplift expected from U.S. tax reform."
Still, the accounting adjustment drove Credit Suisse to its
third-straight year of red ink. The bank's 2015 loss was prompted
by impairment charges it took as it moved to scale back its
investment banking business. In 2016, the bank lost 2.7 billion
francs after reaching a settlement worth about $5.3 billion with
the U.S. Justice Department at the end of that year related to
mortgage securities sold before the financial crisis.
After a rocky 2015 and 2016, 2017 was a year of relative
tranquility. The bank's strategic shift toward wealth management
proceeded without big disruptions and it didn't have costly
litigation issues. Its share price, which briefly fell below 10
francs per share in mid-2016, rose by 20% in 2017.
Credit Suisse said that its outlook for the global economy
"remains positive," though it alluded to the recent period of
turbulence in the financial markets.
"In the first six weeks of 2018, we have seen a significant
pickup in market volatility, which on the one hand had a positive
impact on our secondary activities, and on the other hand,
negatively impacted our primary calendar as clients wait for calmer
markets in order to transact, " it said.
Last week, the bank said it was closing a fund it had created in
2010 that allowed investors to bet on a period of tranquility in
financial markets. The fund, known as XIV, plunged in value early
last week, though Credit Suisse said it didn't suffer trading
losses.
Estimated net revenues in its global markets unit were up more
than 10% in the first six weeks of 2018 versus the same period one
year earlier, and over 15% in Asia.
The bank's international wealth management unit saw a 9% rise in
net revenues last year to 5.1 billion francs, with pretax income up
21% to 1.4 billion francs. Investment banking and capital markets
posted an 8% increase in revenues from the previous year while
revenues in the global markets division were largely flat.
The bank said that it didn't expect to be subject to the base
erosion and anti-abuse tax in the U.S., known as BEAT, in 2018. The
tax is aimed at ensuring banks pay a minimum level of taxes on
transactions with affiliated foreign entities. Last month, UBS
Group AG said BEAT would add up to 60 million francs to its 2018
tax bill.
Credit Suisse also said it would propose a 0.25 franc per share
dividend.
--Pietro Lombardi contributed to this article.
Write to Brian Blackstone at brian.blackstone@wsj.com
(END) Dow Jones Newswires
February 14, 2018 03:32 ET (08:32 GMT)
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