Credit Suisse shares slumped yesterday after a surprise third quarter profit failed to match some investor expectations following strong results from US rivals, while others cashed in on a recent stock price rise.
And just over a year since chief executive Tidjane Thiam outlined plans to turn Switzerland’s second-biggest bank into a regionally-focused wealth manager, he hinted at deeper cost cuts in investment banking to compensate for tough markets ahead.
Credit Suisse, which has already cut thousands of investment banking jobs, said net revenue for the quarter in its Global Markets division, had dropped by 14%.
Although its third-quarter net profit of 41mn Swiss francs ($42.2mn) was well above the average estimate for a 120mn franc loss in a Reuters poll of five analysts, the bottom-line was boosted by one-off gains of 346mn francs from the sale of real estate.
Thiam said the share price fall was due to profit taking by investors, who have seen it rise by more than 25% since early July.
Equities trading revenue in its global markets business, fell by 38%, which Thiam said was 80% driven by a poor showing in Europe. “We’ve had a bad quarter in London,” Thiam said. “There’s every indication that it has come back in October.”
Credit Suisse made some progress in bringing down costs and now expects to approach its cost base target of $5.4bn in Global Markets by the end of 2016, two years ahead of schedule.
Thiam hinted at further cuts ahead of a December 7 investor day.
Thiam cautioned that these tough conditions, which have complicated his plan for more stable earnings by expanding wealth management and placing less reliance on investment banking, would persist for the foreseeable future.
Net new money inflows – a volatile but important indicator of future earnings – totalled 9.2bn francs at Credit Suisse’s three private banking divisions, Asia Pacific, Switzerland and International Wealth Management.
Meanwhile, Credit Suisse’s common equity Tier 1 capital ratio rose to 12% from 11.8% in the previous quarter, at the top end of its target of 11-12% for 2016 and a record high for the bank, Thiam said.
Credit Suisse said it had set aside another 357mn francs for legal bills in cases mainly relating to residential mortgage-backed securities, following last week’s disclosure by UBS that it had set aside an extra $417mn to cover potential penalties tied to RMBS cases.
A 38mn Swiss franc provision for credit losses in its Asia Pacific business was due to loans secured against shares in Hong Kong which had plunged in value, it said.
