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Adjusted expectations

4 Feb 2016 By Dominic Elliott

Credit Suisse’s turnaround is proving more painful than it could have been. The Swiss bank’s fourth-quarter results were riddled with the kind of exceptional items and restructuring costs that are par for the course for European investment banks undergoing strategic rethinks. But even after stripping these out, and ignoring bits that Credit Suisse is winding down, the bank would have failed to turn a profit.

Asia-Pacific was alone among Credit Suisse’s newly created divisions in growing fourth-quarter revenue. Pre-tax profit would have risen by more than a quarter from last year if adjusted for goodwill writedowns. Boss Tidjane Thiam looks on track to hit his target for the segment of delivering 2.1 billion Swiss francs of pre-tax profit by 2018. But that depends partly on China, and Thiam is wary over that market’s near-term prospects.

If that’s the good, then double-digit declines in fourth-quarter revenue in private banking in Switzerland and regions other than Asia look downright bad. Net asset outflows in these regions won’t help Thiam hit targets that are frankly ambitious.

The ugliest aspects of the results concerned Credit Suisse’s capital position and markets trading performance, however. In trading, fourth-quarter fixed income revenue fell a staggering 61 percent year-on-year – far worse than for peers.

The balance sheet looks parlous too. Despite a hefty cash call as part of the October strategy revamp, Credit Suisse’s common equity Tier 1 ratio of 11.4 percent at the end of December was well below the 12 percent-plus average for Europe’s banks. Listing Credit Suisse’s Swiss unit is part of the plan, and will raise capital. But proposing no dividend might have been smart. That’s what Deutsche Bank did.

The parallels with Deutsche don’t end there. Shares in both Credit Suisse and its rival now trade close to all-time lows. Thiam wants to bring cost cuts forward and is slashing bonuses, as well as reducing the deferred portion of these to bring down fixed costs. That will help to some extent, and these are early days. But so far Credit Suisse is making a meal of its strategic rethink.



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