CS Credit Suisse Group

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 and erased what would have been a healthy return to profit.

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.

Credit Suisse shares rose by as much as 4% in early European trading and were up nearly 3% midday.

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 to the U.S. tax system. The losses were less than analysts had expected. Excluding the tax-related charges -- mostly from the signing of the U.S. tax law -- Credit Suisse would have earned about 1.8 billion francs in profit last year, Mr. Thiam said.

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.

Credit Suisse said it expects "positive business uplift" from the tax reform.

Still, the accounting adjustment drove the bank to its third-straight year of red ink. Because the law was signed in 2017, it had to be accounted for in that year's earnings, which has affected earnings at other big banks too. Last month, UBS Group AG wrote down $2.9 billion in these assets.

Credit Suisse's 2015 loss was prompted by impairment charges as it scaled back its investment banking business. In 2016, the bank lost 2.7 billion Swiss francs after reaching a settlement worth about $5.3 billion with the U.S. Justice Department 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 -- while maintaining a streamlined investment banking unit -- 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.

Mr. Thiam rejected the idea that his bonuses and those of other top executives would be affected by the accounting-driven loss.

"You're asking me because Mr. Trump decided to sign the U.S. tax cut and jobs act on Dec. 22, and not Jan. 1, which means that the bonuses should be cut? Because if he would have signed it Jan. 1 we would have had a 1.8 billion [franc] profit," he said at the press conference. "So I don't think the board is going to take that view."

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.

Mr. Thiam said the fund only generated about 10 million Swiss francs a year in revenues. "Any notion that this is material to us is fanciful," he said. Mr. Thiam read from the fund's prospectus that listed the risks and caveats associated with the product, adding "it's a trading tool."

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.

Credit Suisse also said it has responded to requests from regulators including the Justice Department and Securities and Exchange Commission over its hiring practices in Asia, and whether it hired referrals from government agencies in exchange for business and regulatory approvals.

The bank said it is cooperating with authorities.

--Pietro Lombardi contributed to this article.

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

(END) Dow Jones Newswires

February 14, 2018 07:47 ET (12:47 GMT)

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