Credit Suisse turnaround runs out of steam with markets loss

Bloomberg

Credit Suisse Group AG’s turnaround is running out of steam just as the bank enters the final stretch of its overhaul.
Revenue and net income missed estimates in the third quarter, and the Global Markets business — one of the most difficult challenges of Chief Executive Officer Tidjane Thiam’s three-year tenure — posted an unexpected loss. The bank is abandoning a $6 billion revenue target this year for the business.
Thiam has promised to return half the bank’s profit, mainly through buybacks or special dividends, once the lender strengthens capital generation from next year. Scaling down Global Markets — once one of the strongest trading units on Wall Street — and restoring profitability has been a key project of Thiam. The loss is likely to add to fresh questions about future strategy for the unit.
“Credit Suisse results are uninspiring, worse compared to peers,” Vontobel analyst Andreas Venditti wrote in a note to investors. “Global markets disappoints again and keeps underperforming its peers.”
Since Thiam joined from insurer Prudential Plc he’s exited multiple business lines in global markets from distressed-debt trading to securitised product trading in Europe. He’s not giving up on the business, though. The bank plans to invest about 250 million francs in the business after reducing some funding costs, Thiam said in an interview with Bloomberg Television, while acknowledging some targets for the business had been too ambitious.
Credit Suisse has focussed on boosting the wealth management business and dealing with legacy issues, including a settlement with the Department of Justice over the sale of faulty securities, and the buyback of expensive capital instruments from key shareholders. Thiam, though, still needs to reassure investors on how the bank will boost growth.
There was some good news: the bank’s CET1 ratio — a key measure of financial strength — increased about 10 basis points from the end of the second quarter, while the bank continues to attract inflows at a healthy clip in its wealth management and asset management businesses, adding about 14.8 billion francs of new assets in total. The bank also said it expects to meet a target cost base of less than 17 billion francs by the end of the year.
Credit Suisse, in the final quarter of a sweeping three-year restructuring, has been allocating more capital towardss its wealth-management divisions that cater to the rich across the world at the expense of trading operations in New York and London.