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 that nonetheless failed to stir investor
confidence.
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. Shares in the bank rose early,
before reversing to a 2% decline.
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. Compensation costs were down 6% compared with the period
last year.
"The second quarter was a quarter of progress," Credit Suisse
Chief Executive Tidjane Thiam said during a media briefing.
Some analysts were skeptical. Exane BNP Paribas analyst Amit
Goel said the bank's improved capital cushion may reassure some
investors, but Credit Suisse's profitability is still likely to be
challenged by difficult markets as it struggles through an
ambitious revamp. "There wasn't anything in here to really change
that expectation," Mr. Goel said of the quarterly report.
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 56% 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 restructuring 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 avoid taxes. 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 resilient 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.
"It's only a start," Mr. Thiam said of the quarterly
performance, adding, "things are moving in the right
direction."
Write to John Letzing at john.letzing@wsj.com
(END) Dow Jones Newswires
July 28, 2016 06:18 ET (10:18 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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