By John Letzing
ZURICH--Credit Suisse Group AG said that it swung to profit in
the second quarter and provided some cushion for the Swiss lender's
newly-minted chief executive, despite a lackluster result for its
investment bank.
Zurich-based Credit Suisse said on Thursday that net income was
1.05 billion Swiss francs ($1.09 billion) in the quarter, compared
with a loss of 700 million francs in the same period last
year--when the results were undercut by the bank's agreement to pay
$2.6 billion as part of a settlement with U.S. regulators and plead
guilty to aiding American tax evasion.
Analysts had expected Credit Suisse to report net income of 703
million francs.
Net revenue rose 8% to 6.94 billion francs, the bank said.
Credit Suisse is entering a new era under incoming Chief
Executive Tidjane Thiam, a former CEO of U.K. insurer Prudential
PLC who took over at the beginning of this month. The results
published on Thursday reflect a period when the bank was still
being run by Mr. Thiam's predecessor, Brady Dougan.
Leading up to Mr. Dougan's departure, Credit Suisse faced
increasing calls for a scaling down of its relatively costly
investment bank, which is still far larger than that of Swiss rival
UBS Group AG. Many analysts expect that, like UBS, Credit Suisse
might seek to increase its focus on its wealth management
business.
Another challenge facing Mr. Thiam: Further bolstering the
bank's capital cushion.
Credit Suisse said on Thursday that its key capital ratio rose
to 10.3%, from 10% in the prior, first quarter. The measure is
closely watched by regulators gauging the bank's stability and by
investors assessing its potential to attempt significant
acquisitions--a prospect that some analysts see as more likely now
with Mr. Thiam in place as CEO.
Mr. Thiam said on Thursday that he is conducting an "in-depth
strategic review" of the bank, and intends to offer up details of
his plans before the end of the year. The CEO said that his new
strategy should "address some of the pressures apparent" in the
bank's most recent quarterly results, while noting that its
investment bank saw a decline in profit during the period because
of increased costs.
Analysts are eager to hear more, soon. Andreas Brun, an analyst
with Zürcher Kantonalbank, said that he'd hoped to hear details
about strategy changes after the end of the summer holidays, making
Mr. Thiam's end-of-the-year marker a bit disappointing. But Mr.
Brun added that the second-quarter results show the bank is perhaps
already pointed in the right direction, by bolstering its
wealth-management business, which performed "better than expected,"
and by relying less on investment banking to buoy its numbers.
Credit Suisse said that pretax income at its investment bank
fell 18% compared with the same quarter last year, to 615 million
francs, as legal and regulatory costs increased. Net revenue at the
business rose 1%. Debt, or fixed income, sales and trading revenue
fell 5%, while equity sales and trading revenue rose 18%. A pick up
in closings of mergers and acquisitions during the quarter helped
boost advisory revenue 29%.
Credit Suisse's investment-banking results reflect a period that
saw some market tumult, as a result of ongoing uncertainty about
Greece's relationship with its European creditors. The bank said
uncertainty in Greece negatively impacted parts of the investment
bank, and cautioned that broader, "weaker trends" experienced in
June have continued into the current, third quarter.
Pretax income at Credit Suisse's private-banking and
wealth-management unit was 937 million francs in the quarter,
compared with a loss in the period last year, while net revenue
rose 3%. Net new assets for the business amounted to 14.2 billion
francs, an increase from 10.1 billion francs reported in the same
period last year, due in part to significant inflows from clients
in Asia, the bank said.
Like other Swiss banks, Credit Suisse has seen clients from
Europe withdraw funds as they declare their offshore accounts to
tax authorities at home. However, during a conference call with
reporters, Chief Financial Officer David Mathers said that less
money is flowing out than had been expected. While the bank earlier
signaled that between 10 billion francs and 15 billion francs would
leave the bank by the end of this year as a result of the
"regularization" of accounts, it now expects less than 10 billion
francs to depart.
Profit margins for the wealth-management business, which have
come under close scrutiny from analysts, improved during the
quarter, Credit Suisse said.
A stronger Swiss franc, thanks to the Swiss National Bank's
decision in January to let the currency rise sharply in value, has
proved disruptive for Credit Suisse and many other Swiss banks. On
Thursday, Credit Suisse noted that 29% of its total expenses in the
first half of the year came in Swiss francs, while 19% of its net
revenue was denominated in the local currency.
Write to John Letzing at john.letzing@wsj.com
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