Suisse posts loss amid cost-cutting

Bloomberg

Credit Suisse Group AG Chief Executive Officer Tidjane Thiam signalled he’s confident in delivering planned cost cuts this year after a tumultuous first quarter sparked a second quarterly loss. The shares jumped.
Switzerland’s second-biggest bank on Tuesday reported a loss of 302 million Swiss francs ($311 million) in the three months through March, compared with a profit of 1.05 billion francs a year ago. Analysts predicted a loss of 344 million francs in that period, according to the average of 10 estimates compiled by Bloomberg.
Thiam is shrinking the investment bank to free up capital for
expanding the bank’s wealth-management business, targeting clients across the Asia-Pacific region, and accelerated the overhaul in March after disclosing more markdowns on high-risk securities. The lender maintained its key capital ratio from the end of the year and said that it’s “confident” that it will be able to meet or exceed gross cost savings for 2016.
“We’re at the trough — I don’t think we’ll get worse conditions than in the first quarter,” Thiam said in an interview with Francine Lacqua on Bloomberg Television on Tuesday. “We remain cautious in terms of the outlook because it feels fragile. The market is very sensitive, there’s not much liquidity.”
Credit Suisse shares rose 5.4 percent to 14.15 francs in Zurich. They have been hurt by a market selloff that contributed to shares losing about 35 percent of their value this year. Deutsche Bank AG and Barclays Plc, both also in the midst of restructuring programs, have declined 35 percent and 28 percent, respectively.
The lender’s common equity tier 1 ratio, a measure of financial strength, was unchanged at 11.4 percent at the end of March. Analysts had said the ratio would be a focus for investors in the quarter, with Morgan Stanley
estimating a drop to 11.1 percent.
“The CET1 ratio is the highlight of these results, with Credit Suisse being able to keep the ratio stable thanks to lower risk-weighted assets,” said Andreas Venditti, an analyst at Vontobel with a hold recommendation on the shares.
“The outlook is very cautious — after such a bad start, it’s likely to be a very bad year indeed.”

‘Cost Control’
The bank said it achieved more than half of its 1.4 billion francs in net cost cuts targeted for 2016 in the first quarter and is looking to meet or exceed 1.7 billion francs in gross savings by year end. At the global markets unit, housing securities trading, it eliminated about 1,000 of the 3,500 jobs targeted as part of the overhaul this year.
“Credit Suisse was able to more than compensate for the stronger than expected revenue drop through good cost control,” Andreas Brun, analyst at Zuercher Kantonalbank with a market perform rating on the shares, said in a note.
The unit, led by Tim O’Hara, which helped spark a larger-than-expected shortfall in the fourth quarter as a result of writedowns on mainly distressed credit and securitized pools of risky loans, slipped into a loss 635 million francs in the first quarter after a profit of 842 million francs a year earlier. The business had further writedowns of $403 million.

Off Guard
Thiam said in March that traders took large, risky positions, catching himself and other top executives off guard. While he only found out in January, the CEO said he has since taken steps to address losses, shrinking the unit and eliminating jobs.
Credit Suisse plans to exit most of the distressed credit, European securitized product trading and long-term illiquid funding. The bank said it’s on track to meet its target of cutting risk-weighted assets at the global-markets unit to $60 billion by year end.
At the investment banking and capital markets business, led by Jim Amine, the loss widened to 103 million francs from 47 million francs a year ago. The unit saw “muted client activity” in debt and equity underwriting, especially in the first two months, with the market experiencing some of the lowest quarterly issuance volumes since 2009.
“January and February were very bad,” Thiam said. “March was better and April was even better than March. May is showing some positive signs.”

BOOM BUST
Some of Europe’s largest banks have cut their trading businesses as regulators step up scrutiny of riskier activities while record-low interest rates and volatile markets erode revenue. UBS Group AG earlier this month reported a 64 percent drop in first-quarter profit, hurt by a slump in revenue at the investment bank. BNP Paribas SA reported a 13 percent decline in revenue from trading fixed income, currencies and commodities in the period.
Credit Suisse’s international wealth management business’s private banking unit had net new asset inflows of 5.4 billion francs in the first quarter, while the strategic resolution unit, which includes businesses the bank is looking to exit, shrank by 13 percent.
“Results are solid,” said Tomasz Grzelak, an analyst at Main First. “Global Markets is a disaster, while APAC is solid and global Wealth Management is very strong.”

t year from Britain’s Prudential Plc, tapped shareholders for about 6 billion francs in November to help fund the bank’s restructuring and bolster capital. The CEO said the bank is “very keen to return as much cash as possible to shareholders,” targeting a return of 40 percent of its cash flow in future years.
“We don’t believe in a boom and bust model,” he said in the interview. “We need a strong capital base to be successful, we need relatively stable income streams, we need to derisk which is what we’ve been doing.”