(Adds management and analyst comment.)
By Katharina Bart
Of DOW JONES NEWSWIRES
ZURICH -(Dow Jones)- Credit Suisse Group (CS) Thursday matched buoyant third-quarter results from its healthiest U.S. rivals as earnings from its investment banking business helped push it to a larger-than-expected net profit, though analysts cautioned that blowout profits may be coming to an end.
The Zurich-based bank said net profit for the three months was 2.4 billion Swiss francs ($2.38 billion) compared with a loss of CHF1.3 billion in the year-earlier period. Analysts had forecast net profit of CHF1.72 billion.
As an outlook, Credit Suisse said it is confident of its position among competitors and is prepared for several possible scenarios.
"If markets remain constructive, we expect to be able to maintain our momentum. Even if markets become more difficult, we believe that Credit Suisse is positioned to perform well," Chief Executive Brady Dougan said in a statement.
The investment bank swung to a CHF1.75 billion pretax profit - more than twice the private bank's figure. A year earlier, the investment bank posted a pretax loss CHF3.21 billion.
In particular, global interest-rate products, foreign-exchange trading, prime brokerage, cash equities leveraged buyout loans and trading in U.S. residential mortgage securities and derivatives made a strong showing in the recent quarter.
However, Credit Suisse shares fell, partly on concerns that the investment bank cannot sustain its profitability, as once-ailing competitors such as Royal Bank of Scotland Group PLC (RBS), Citigroup Inc. (C) and UBS AG (UBS) once again gear up their securities operations.
Evidence of a lack of sustainable investment-bank profits might already be surfacing. The unit's revenue fell 16% from the second quarter, and Bernstein Research said that profits only held up because loan-loss provisions were extremely low and because Credit Suisse skimped on bonus payouts. The brokerage rates Credit Suisse at underperform with a CHF45 target price.
At 1105 GMT, Credit Suisse was down CHF1.25, or 2.1%, at CHF58.80, underperforming a 1.8% fall in the Stoxx Europe 600 bank index.
While acknowledging that investment banking margins may fall, bank CEO Dougan voiced optimism that some areas - such as leveraged loans, commodities trading and forex trading - will perk up, either in terms of demand from clients or in Credit Suisse's share of the market.
Credit Suisse's overall revenue in its core activities in the period was CHF8.92 billion, which represents a near-tripling from the year-ago period, when major trading losses and write-downs on mortgage securities plunged the bank to the net loss.
The quarterly results are likely to be taken as evidence the Swiss bank has navigated the financial crisis better than many rivals, and places it alongside U.S. banks such as JP Morgan & Chase Co. (JPM), Goldman Sachs Group Inc. (GS) and Morgan Stanley (MS), all of which recently posted healthy quarterly earnings.
Credit Suisse, which recorded a strong Tier 1 ratio of 16.4% in the quarter, also said it wanted to signal to investors that it is setting funds aside for a "reasonable" 2009 dividend, which would mark a return to more normal shareholder payouts. In 2008, when Credit Suisse posted a full-year net loss, it paid shareholders CHF0.10 a share. Past dividends have typically been far richer. It paid CHF2.24 a share in 2006 and CHF2.50 in 2007.
At Credit Suisse's private bank, which garnered fresh assets of CHF13.1 billion during the quarter, the gross margin on assets fell sequentially, representing a weak spots in the earnings.
Credit Suisse's net profit was helped by roughly CHF100 million in special items, including one related to selling some fund-management activities to Aberdeen Asset Management PLC (ADN.LN) and tax benefits.
Credit Suisse is the first of Europe's major investment banks to report the quarter, though Germany's Deutsche Bank AG (DB) Wednesday surprised investors by stating that third-quarter net profit will be more than triple the year-earlier figure, helped by tax-related gains.
Also Wednesday, shares in Morgan Stanley surged after the U.S. bank snapped back from three straight quarterly losses on strong fixed-income sales and trading.
Swiss rival UBS is expected to remain firmly entrenched in losses when it reports Nov. 3.
Company Web site: http://www.creditsuisse.com
-By Katharina Bart, Dow Jones Newswires; +41 43 443 8043; katharina.bart@dowjones.com