Credit Suisse Cuts Profitability Target as Profit Misses

Thursday, 10 Feb 2011 08:28 AM

 

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Credit Suisse missed profit expectations in the fourth quarter because of debt charges and cut its return on equity target due to tighter capital regulations.

Investment banking pretax income rose to 558 million Swiss francs ($579.8 million) from a lackluster 395 million the previous quarter, Switzerland's second-largest bank said on Thursday.

The bank benefitted from the same improvement in client activity seen at cross-town rival UBS on Tuesday, both bucking a disappointing trend set by other big competitors like Goldman Sachs.

Credit Suisse said its quarterly net profit was hit by 146 million of fair value charges on its own debt due to the tightening of credit spreads, as well as fair value losses on cross currency swaps relating to its own long-term debt.

Chief Executive Brady Dougan hired investment bankers aggressively in the second quarter of 2010 just as markets flattened.

His bold strategy initially backfired as trading revenues wilted in the third quarter and have since remained poor, though Credit Suisse is widely seen as well placed to benefit from any upturn in trading activity.

"We saw continued momentum at the investment bank with strong results in underwriting and advisory and solid equity sales and trading results," Dougan said in a statement.

"Our businesses have maintained good market share momentum and we are in a very strong position to deliver sustainable returns for shareholders and clients."

Regulations Dampen ROE Targe

Credit Suisse proposed a dividend of 1.30 francs, free of Swiss withholding tax, down from 2 francs in 2009, as it maintained its efforts to build capital to meet stringent new Swiss regulation.

While these rules, which go beyond tough new international banking laws, could put the big Swiss banks at a disadvantage to overseas peers, Credit Suisse and UBS have already cut back further on the most capital-sapping activities than most rivals.

Dougan said Credit Suisse had cut its return on equity target to "above 15 percent" from "above 18 percent" due to tighter capital regulations.

He also reiterated a target for a net asset growth rate above 6 percent.

Credit Suisse attracted 9.6 billion of net new client money to its wealth management arm, which has held up well throughout the crisis, benefitting from clients leaving in droves from UBS, which was rescued from the brink by the Swiss state after massive writedowns on toxic assets.

Credit Suisse shares have risen 19 percent so far this year, making them the best performing stock in the Swiss Market Index , but they are yet to recover all the ground lost last year, when they were the worst performer.

© 2014 Thomson/Reuters. All rights reserved.

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