CS Credit Suisse Group

   (FROM THE WALL STREET JOURNAL 2/5/16) 
   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 world-wide, and especially in Europe. Shares of Credit Suisse, Deutsche Bank AG and Italy's UniCredit SpA all are off by about one-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. 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 21% 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 goodwill impairment charge of 3.8 billion francs, 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 would 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. Analysts had expected a loss of 4.97 billion francs and net revenue of 4.85 billion francs for the period.

The latest report is the first to reflect Credit Suisse's new structure under Chief Executive Tidjane Thiam, who took over last 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, had 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 UBS demonstrated that wealth management isn't 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 3 billion francs in net new assets in the quarter -- up from a rise of 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, from 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.

(END) Dow Jones Newswires

February 05, 2016 02:48 ET (07:48 GMT)

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