By John Letzing
It isn't a good time to be a bank.
Credit Suisse Group AG made that clear Thursday, reporting
substantial outflows in its wealth-management division and a
bigger-than-expected loss. Investors pummeled shares of the Swiss
giant, sending them down 11%.
The weak results add to carnage sweeping the banking industry
across the globe, and especially in Europe. Shares of Credit
Suisse, Deutsche Bank AG and Italy's UniCredit SpA are all off by
about a third so far this year.
They also raise the question of what, exactly, banks should be
doing. Deutsche Bank is trying to bolster its core
investment-banking and trading business, but it has stumbled, and
the investment bank reported a loss in the fourth quarter.
Credit Suisse is pulling back from investment banking and
turning its energy to wealth management. Crosstown rival UBS Group
AG has been heading that way for a while. But both Swiss banks
reported outflows by wealth-management clients troubled by the
wider financial-market turmoil. UBS's shares are off more than 20%
this year.
Indeed, part of the net loss of 5.8 billion Swiss francs ($5.8
billion) that Credit Suisse reported in the fourth quarter came
from its move to extricate itself from investment banking. It took
a 3.8 billion franc goodwill impairment charge, primarily related
to its acquisition of U.S. investment bank Donaldson, Lufkin &
Jenrette for $11.5 billion in 2000--a price widely viewed at that
time as expensive.
The fourth-quarter loss compared with a profit of 691 million
francs in the same quarter a year earlier.
Credit Suisse also said Thursday that net revenue fell 34% to
4.2 billion francs. It said it will cut about 4,000 jobs as part of
an attempt to reduce costs by billions of dollars.
The bank had previously flagged the likelihood of a large
quarterly loss. Still, analysts had expected a loss of 4.97 billion
francs for the period, and 4.85 billion francs in net revenue.
The latest report is the first to reflect Credit Suisse's new
structure under Chief Executive Tidjane Thiam, who took over in
July and announced his strategic plans for the bank in October.
Those plans include bolstering wealth management, particularly in
regions such as Asia, while reducing the resources directed to its
investment bank.
The bank's new structure includes a focus on the international
wealth-management business, but the private-banking unit at that
business, as well as its Swiss private-banking operation, saw net
asset outflows in the fourth quarter.
Investors and analysts have generally cheered Credit Suisse's
shift in direction, which could spare it from some of investment
banking's volatility.
However, results posted earlier this week by Credit Suisse rival
UBS demonstrated that wealth management is also not without risk.
UBS, which has sharply reduced its own investment bank, reported
billions of dollars in outflows from its core wealth-management
business, as clients withdrew money amid challenging markets or
declined to invest.
"The environment has deteriorated materially during the fourth
quarter of 2015 and it is not clear when some of the current
negative trends in financial markets and in the world economy may
start to abate," Mr. Thiam said Thursday.
Credit Suisse last year posted a series of ambitious targets to
reach by 2018, including more than doubling the pretax profit it
makes in Asia. During a conference call, analysts asked Mr. Thiam
if the bank can still hit those targets. He said it can. "We have a
clear strategy. Clearly we're implementing it in difficult
markets," he said.
Like UBS, Credit Suisse cited a lower level of activity among
its clients in the quarter. The lender's private-banking unit in
Asia, however, reported three billion francs in net new assets in
the quarter--up from 1.6 billion francs in the same period a year
earlier.
"We continue to believe that wealth management, supported by our
investment-banking capabilities, remains a uniquely attractive
long-term opportunity," Mr. Thiam said. Meanwhile, Mr. Thiam said
he has opted to accelerate a cost-cutting program already in place,
designed to save about 3.5 billion francs by the end of 2018. The
job cuts announced by the bank on Thursday include contractors and
consultants, Credit Suisse said.
The bank's operation in its home country of Switzerland, dubbed
its Swiss Universal Bank, is slated for a partial initial public
offering of shares by next year. The business reported that pretax
profit fell to 367 million francs in the fourth quarter, compared
with 707 million francs in the period a year earlier.
Net revenue at the Swiss Universal Bank fell 14%, Credit Suisse
said. Net asset outflows at the unit's private-banking business
totaled 2.9 billion francs.
The bank's international wealth-management business, which is
focused on expanding in emerging markets including Eastern Europe
and sub-Saharan Africa, reported a pretax loss of 20 million francs
in the quarter, compared with a pretax profit of 423 million francs
in the period a year earlier.
The international wealth-management unit reported net asset
outflows of 4.2 billion francs in the quarter for its
private-banking business.
Credit Suisse's private-banking net asset inflows in Asia were
offset by a fourth-quarter pretax loss of 617 million francs for
the business, compared with a pretax profit of 122 million francs
in the period a year earlier.
Write to John Letzing at john.letzing@wsj.com
(END) Dow Jones Newswires
February 04, 2016 12:40 ET (17:40 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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