By John Letzing
ZURICH -- Credit Suisse Group AG Chief Executive Tidjane Thiam
said the surprise quarterly profit reported by the Swiss bank on
Thursday shows his strategic revamp is getting on track. Many
investors weren't so sure.
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 declines in restructuring,
compensation and other expenses. Credit Suisse also bolstered its
layer of protective capital. "The second quarter was a quarter of
progress," Mr. Thiam said during a media briefing.
Yet, shares in the bank slipped 5%.
Analysts said a number of factors were behind the stock dip, not
least the downbeat outlook issued by Mr. Thiam. "We remain
cautious," he said during a media briefing, indicating that the
bank will likely continue to see wary wealth management clients
refrain from engaging in transactions in volatile markets and
generating fees for Credit Suisse.
In addition, some of the welcome increase in the bank's
protective capital was actually a result of a 7% jump in issued
shares from the prior, first quarter. The new shares were needed to
pay a dividend, compensate employees with equity, and to make
contractual payments tied to Credit Suisse's 2010 purchase of a
stake in New York hedge fund York Capital Management. But they also
watered down the holdings of existing investors.
Vontobel analyst Andreas Venditti said an increase in share
count was expected in the quarter, but not to such an extent.
"Getting diluted is not something shareholders want to see," Mr.
Venditti said.
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. 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 choppy
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 nearly 60% in the past
year.
The results posted on Thursday provide some encouragement that
the bank's strategic restructuring is gaining traction, analysts
said.
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. Much
of the increase was achieved by shedding unwanted assets from the
bank's balance sheet. The size of its 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.
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.
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%.
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 12:57 ET (16:57 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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