Credit Suisse narrows Q4 loss ahead of US settlement

AP / Bloomberg

Credit Suisse more than halved its fourth-quarter loss compared with a year earlier, the bank said on Tuesday, amid a “challenging” global market and continued cost cuts, after striking a multibillion-dollar settlement with U.S. regulators.
The Zurich-based bank said it had set aside about $2 billion in the quarter to help pay for what became a $5.3 billion settlement with the U.S. Justice Department, finalized last month, over claims the bank misled investors about the quality of mortgage-backed securities that it sold before the 2008 financial crisis.
CEO Tidjane Thiam said the arrangement removes “a major source of uncertainty for our future.”
Credit Suisse said its net loss narrowed to 2.35 billion Swiss francs ($2.34 billion) in the fourth quarter, down from 5.83 billion francs a year earlier. For the full year, the net loss dropped to 2.44 billion, from 2.94
billion in 2015.
“2016 was the first full year of implementing our new strategy and it was a challenging and busy 12 months,” Thiam said. “Thanks to our strong client franchise and the dedication of our teams, we have made good progress on our key objectives.”
Revenues rose 23 percent to 5.18 billion francs in the fourth quarter compared to a year earlier, propelled by the best fourth-quarter performance for its investment banking and capital markets segment in four years.
Thiam said the bank had improved its capital ratio and reduced costs by 1.9 billion francs during the year.
Overall, depending on market fluctuations, he told a conference call that 2017 looks “positive.” The bank announced plans to propose a dividend of 0.70 francs per share at the company’s annual general meeting on April 28.

6,500 jobs cuts
Credit Suisse plans to cut as many as 6,500 jobs this year and is keeping its options open as it prepares for a partial sale of its Swiss unit to strengthen capital. The Swiss bank is stepping up cost cuts after a charge to settle a U.S. investigation into the role of its mortgage securities business in the 2008 financial crisis led to a fourth-quarter loss of 2.35 billion francs ($2.34 billion)
Credit Suisse reported a common equity Tier 1 ratio, a measure of financial strength, of 11.6 percent at the end of December, down from 12 percent at the end of September. The bank is targeting 13 percent by the end of 2018.
Cost-cutting is ahead of schedule and an improved market sentiment for banks that boosted trading in the fourth quarter has continued this year, Thiam said in the interview. The bank eliminated 7,250 jobs last year, surpassing its target of 6,000 cuts for 2016, Chief Financial Officer David Mathers told reporters. The bank employs about 47,000.
Thiam had said he was accelerating cost cuts when he updated investors on his turnaround plan in December. But he declined to give a target for job cuts at the time, except to say that the downsizing of the global markets unit, where most of last year’s cuts occurred, was largely completed.

Backstop or Cornerstone?
The CEO has long described the plan to raise 2 billion francs to 4 billion francs through a sale of 20 percent to 30 percent of the Swiss business as a cornerstone of his strategy to reshape the company to focus on wealth management. On a conference call with analysts, he repeatedly referred to it as merely a “backstop.”
“It’s not convincing that the IPO would have achieved any great benefit to the capital position of the bank,” said Ray Soudah, founder of Millenium Associates, a corporate finance advisory firm in Zurich. “They’ve now realized this and the IPO is unlikely to happen. There’s no merit to doing it, especially after the recent recovery in the share price.”
The shares rose as much as 4.2 percent on Tuesday and were trading 2.9 percent higher at 12:30 p.m. in Zurich, while the Bloomberg Europe 500 Banks and Financial Services Index was little changed. The stock has rebounded since mid-2016 amid more favorable market conditions.
The shortfall in fourth-quarter profit reflected a charge to settle with the US Justice Department. Thiam said the bank expects to pay only $2.55 billion of the $5.3 billion settlement. The agreement calls for $2.8 billion in consumer relief for which the bank has set aside about $70
million, he told analysts.