By John Letzing
ZURICH-- Credit Suisse Group AG reiterated a rough outline on
Wednesday for a potential bite out of the bank's profit, thanks to
the recent surge of the Swiss franc, a swing in value that is
expected to kneecap much of Switzerland's financial sector.
However, Zurich-based Credit Suisse, which operates a
foreign-currency trading business at its investment bank, added
that it didn't suffer "material" trading losses due to the abrupt
change in value of the franc, which followed a surprise lifting of
a cap on the value of the currency last week.
Last Thursday, the Swiss National Bank abruptly canceled its
policy of capping the value of the franc to 1.20 per euro, sending
the value of the franc significantly higher relative to both the
euro and the U.S. dollar. The move is expected to have an impact on
the profitability of many Swiss banks, including Credit Suisse,
which derive much of their income in euros and dollars.
On Wednesday, Credit Suisse reiterated that it remains about as
sensitive to shifts in the value of the franc relative to the euro
as it was last October, the time of its most recent earnings
report. At that time, the bank said a 10% move in the value of the
franc relative to the euro could have shaved 180 million francs
($209 million) from its pretax profit for the first three quarters
of last year. The bank noted Wednesday that, according to current
exchange rates, the franc has fallen 20% below its average value
relative to the euro last year.
Credit Suisse added that the actual impact on the bank's
profitability this year remains to be seen, and that the impact
could be offset by unspecified "management actions." A spokeswoman
for the bank declined further comment.
On Monday, Credit Suisse had posted a message on its website
warning that its sensitivity to currency swings remained unchanged
from the time of its October earnings report.
Credit Suisse added on Wednesday, however, that it didn't suffer
"any material trading losses" related to the recent volatility in
foreign exchange rates following the SNB's move. The bank said it
has "recorded positive trading results" in the period following the
SNB's announcement of the change in policy last week.
Credit Suisse has a foreign currency trading business that is
relatively small compared with its Zurich-based rival UBS AG.
A UBS spokesman declined to comment. UBS hasn't issued any
guidance related to the possible impact of the strengthened franc
on the bank's profits. However, last week analysts at Morgan
Stanley suggested that UBS could see a 16% cut in its earnings per
share thanks to the sudden change in currency value.
UBS is expected to release financial results for the fourth
quarter of last year on Feb. 10, while Credit Suisse is scheduled
to report results on Feb. 12.
Credit Suisse shares have fallen nearly 17% since the Swiss
central bank announced its change of policy on capping the franc
last Thursday, while shares of UBS have fallen roughly 13%.
Julius Baer Group AG, a Zurich-based bank focused on wealth
management, said on Monday that it expected to be able to put
unspecified measures in place to "defend" its profitability in the
wake of the SNB decision. However, Julius Baer and other private
banks, which tend to cater to wealthy clients within Switzerland's
borders, are expected in some ways to take a heavier hit from the
strengthening franc. That is because much of their costs are
denominated in francs, while their incomes come largely in the form
of euros or U.S. dollars. They also generally have less leeway to
use the francs on their balance sheets to seek out potentially
profitable investments.
Shares of Julius Baer have fallen more than 18% since the SNB
announcement last Thursday, and the bank is expected to post
financial results on Feb. 2.
Lombard Odier Group, a Geneva-based private bank with roots
dating back to the 18th century, will this week begin charging a
0.75% fee on cash deposits of more than 100,000 francs as a result
of the SNB's policy change. The charge will not apply to cash held
in client portfolios actively managed by the bank, which is
balanced out by holdings in other currencies and assets such as
stocks.
Write to John Letzing at john.letzing@wsj.com
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