CS Credit Suisse Group

By John Letzing 

ZURICH-- Credit Suisse Group AG reported a surprise quarterly profit on Thursday as expenses fell, marking a rare bright spot for the Swiss bank as it presses ahead with a radical overhaul amid challenging markets.

Zurich-based Credit Suisse said its net profit for the second quarter was 170 million Swiss francs ($172.5 million), compared with 1.05 billion francs in the same period last year. The bank said net revenue fell 27% to 5.1 billion francs.

Analysts had expected a net loss of 37 million francs and 5.17 billion francs in net revenue.

The reported results followed two consecutive quarterly losses for the bank, and were bolstered by a 64% decline in restructuring expenses from the first quarter, a 5% drop in general and administrative expenses, and an overall 1% decline in operating expenses.

"We were able to improve our performance in the second quarter and to operate profitably in a volatile context," Credit Suisse Chief Executive Tidjane Thiam said in a statement. The CEO said his outlook for the second half of the year remains "cautious," however, due to geopolitical and macroeconomic concerns.

Credit Suisse is in the midst of an extensive reshaping designed to cut back on investment banking and expand wealth management, which began last October.

Mr. Thiam recently passed the one-year mark of his tenure at Credit Suisse. His early months were distinguished by a successful capital raising and plaudits for de-emphasizing relatively volatile investment banking. More recently, though, the bank has become bogged down by turbulent markets, internal hiccups amid its restructuring, and a steep decline in its stock price.

Credit Suisse's European peers have also struggled, as challenging markets and low interest rates have hit both investment banking and wealth management results. Thursday's results come one day after Deutsche Bank AG posted a 98% decline in quarterly profit, and a day before Credit Suisse's Swiss rival UBS Group AG is expected to report a sharply reduced profit for the period.

Shares of Credit Suisse have fallen 57% in the past year.

The results posted on Thursday provide some encouragement that the bank's strategic revamp is getting on track.

Credit Suisse's closely watched key capital ratio stood at 11.8% in the quarter, up from 11.4% in the first quarter, and sharply higher than the 10.3% reported in the same period last year. The size of the bank's stabilizing capital buffer, which is mandated by regulators and must be divvied up to bolster different elements of its business, has come under close scrutiny of late.

Credit Suisse's revamp has involved plans to cut thousands of jobs, including contractors' positions. On Thursday, the bank said its head count of full-time employees was 47,180, down 1% from the first quarter. It hauled in 12.1 billion francs in net new assets to manage in the period, compared with 13.7 billion francs in the same quarter last year.

Lower litigation provisions helped to bring down expenses, Credit Suisse said. However, the bank said legal issues it faces include inquiries from unspecified authorities regarding the relationship between banks and Panama-based law firm Mossack Fonseca. Credit Suisse was named among other banks earlier this year in leaked documents as a significant user of offshore structures provided by Mossack Fonseca, which can be used by wealthy clients to discreetly deposit money overseas. Credit Suisse said it has been cooperating with the authorities.

Mr. Thiam has said previously that the bank only encourages the use of such offshore structures when they "have a legitimate economic purpose."

Credit Suisse's Global Markets division, an investment bank trading unit recently hobbled by problematic debt positions that generated more than $1 billion in write-downs, reported a pretax profit of 154 million francs for the quarter, compared with a loss in the prior, first quarter, and with a profit of 391 million francs in the same period last year. Net revenue at the unit fell 15%, and operating expenses fell 3%.

As Credit Suisse trims its historically significant investment bank, it has placed unwanted assets in a designated unit to be sold off. That unit reported a pretax loss of 759 million francs, down sharply from the first quarter, as operating expenses fell 27% and risk-weighted assets fell 12%.

During a conference call with reporters, Credit Suisse Chief Financial Officer David Mathers said the unit managed to shed $15 billion in risk-weighted assets since the end of last year, "notwithstanding a difficult set of market conditions."

Mr. Mathers touted the profitability of Credit Suisse's wealth-management businesses in the period.

Pretax profit for Credit Suisse's business in Asia fell 44% in the quarter, to 206 million francs. The business's private banking unit received 5 billion francs in net new assets in the period, compared with 6.6 billion francs in the period last year.

Credit Suisse's Swiss Universal Bank, its Switzerland-based operation slated for a partial initial public offering of shares next year, registered a slight decline in pretax profit, to 453 million francs, as net revenue fell 9%. The Swiss unit pulled in 900 million francs in net new assets for its private banking business, down from 1.5 billion francs in the period last year.

The International Wealth Management unit, which encompasses markets outside of Switzerland and Asia, reported a 10% decline in pretax profit for a quarter in which its private banking business pulled in 5.4 billion francs in net new assets--compared with 200 million francs in the period last year.

Write to John Letzing at john.letzing@wsj.com

(END) Dow Jones Newswires

July 28, 2016 03:28 ET (07:28 GMT)

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