By John Letzing
ZURICH--Credit Suisse Group AG notched a better-than-expected
second-quarter profit, cheering investors and providing the bank's
chief executive, Tidjane Thiam, with momentum in his first month on
the job.
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 included a $2.6 billion tax-evasion settlement.
Analysts had expected Credit Suisse to report net income of 703
million francs.
The bank's shares rallied 5%. Analysts said that the results
highlighted Credit Suisse's ability to benefit from its
wealth-management business even when the company's investment bank
turns in a lackluster performance. Another boost for the share
price: Mr. Thiam, who replaced Brady Dougan as CEO at the beginning
of July, said that the bank will increasingly rely on private
banking and wealth management while pulling back from investment
banking.
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 have hoped that, like UBS, Credit
Suisse might seek to increase its focus on its wealth management
business.
Analysts have also hoped that Mr. Thiam would bolster 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 during a conference call with analysts 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 "produce less volatile results"
than Credit Suisse delivered for the second quarter, while noting
that its investment bank saw a decline in profit in the period, as
its costs rose and a key business faltered.
The new CEO noted that Credit Suisse's private-banking and
wealth management business did well, particularly in Asia and
Switzerland. "Yes, we want to move toward allocating more capital
to that business, and to be more selective about what we do in the
investment bank," which has become less attractive amid strict
capital requirements, Mr. Thiam said.
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 prop up its overall
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
that 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.
Outside of Switzerland, Mr. Thiam sought to make clear that he
will be closely focused on Asia. He said that the first trip he
made during his transition period as incoming CEO was to Hong Kong,
where his team felt "the warmth of my support, and the pressure of
my demands."
"There is no strategy on earth that shouldn't include Asia," Mr.
Thiam said.
Mr. Thiam's strategy, he said, will also include stripping out
fixed costs by shutting down operations yet to be determined. "The
road ahead, " he said, "will not always be straight, or easy."
Write to John Letzing at john.letzing@wsj.com
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