Credit Suisse uncertain outlook clouds investment bank gains

Bloomberg

Credit Suisse Group AG signalled that business continued a mixed performance in the fourth quarter and warned that reaching a profit target next year will depend on the impact of the pandemic.
The investment bank “continues to perform well,” with revenue higher than in last year’s fourth quarter, Credit Suisse said in a statement, without providing more details. In the wealth unit, stronger transactional earnings are offsetting currency headwinds and negative interest rates.
The bank said reaching a return on tangible equity — a key measure of profitability — of 10% to 12% next year will depend in part on whether provisions for bad loans will return to a normal level. The lender confirmed the target for the medium-term, as well as its plans for capital distributions.
Chief Executive Officer Thomas Gottstein is seeking to turn the corner after a series of setbacks overshadowed his first year in office, from loan losses to questionable dealings for a large client. While he
simplified the organisational setup, including at the securities unit, and started a review of the asset management business, he’s been unable to stop a constant flow of bad news. In the latest hit, a impairment on a hedge fund stake and potentially surging legal provisions threaten to push it to a fourth-quarter loss.
“Revenue momentum stalled” last quarter and the fourth quarter “may be similar,” Citigroup Inc. analysts including Andrew Coombs wrote in a note. While next year, the bank’s profit target “is unlikely to be achieved, we do still think this is feasible in the medium-term.”
Credit Suisse didn’t say whether it expects to make a profit in the fourth quarter. The bank also didn’t say how its trading business performed so far. The management is scheduled to give a more detailed update to investors soon.
Since Gottstein combined the investment banking and trading activities in one unit, the business has shown mixed results, with advisory doing well in the third quarter, while fixed income trading — the largest revenue contributor — trailed peers.
The heads of the two largest US lenders, JPMorgan Chase & Co. and Bank of America Corp., told investors that their investment-banking and trading divisions would notch a strong performance in the fourth quarter as economic activity stayed fairly resilient.
Citigroup expects its fixed-income and equity trading revenue to climb by a percentage in the mid-teens this quarter, but there are signs markets are beginning to stabilise, Chief Financial Officer Mark Mason said at an investor conference on December 9.
Credit Suisse said it plans to grow wealth management-related pretax income to between 5 billion francs and 5.5 billion francs in 2023, by boosting lending and new assets. The firm also plans to increase collaboration with the investment bank.
In asset management, a business that’s typically a source of stable income, the pandemic has exposed some weaknesses, as the bank suffered a number of fund implosions this year as well as a scandal involving one of its largest clients, SoftBank Group Corp.
Credit Suisse said that it expects a significant turnaround at the unit next year, as it expands the investments in alternatives and private markets and sells more of its products to the wealth management clients.