Credit Suisse profit drops as wealth management fees tumble
Credit Suisse Group said it would renew dividends and begin a share buyback programme despite posting a 38 per cent drop in net profit for the third quarter as a surge in investment banking failed to offset a slowdown in wealth management.
The Swiss banking giant reported a profit of 546 million Swiss francs (£461m) for the three months to September, below the 572 million franc median of bank-compiled analyst estimates.
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Credit Suisse to issue despite profit drop
The fall in profit came as Credit Suisse faced its strongest foreign currency headwinds in nearly a decade thanks to a strong Swiss franc, alongside higher credit loss provisioning and a one-off boost which had flattered last year’s numbers.
Despite this, the bank said it planned to restart its share buyback plan next year, spending up to 1.5 billion Swiss francs to repurchase stock. The lender also forecast a 2020 dividend five per cent higher than the previous year’s.
Shares in the bank fell as much as 5.88 per cent following the publication of the results. Barclays analysts said the figures were “not as strong” as some had anticipated.
“We think investors may have been looking for a bigger beat, given peer reporting, and expect the shares to be weaker,” they said.
Credit Suisse shares have lost more than a quarter of their value so far this year – falling twice as much as those of arch-rival UBS, but staying ahead of the European banking index.
Restructuring costs and litigation expenses hit profits
Chief executive Thomas Gottstein said that if exceptional items were excluded, underlying performance across the bank’s main divisions had been healthy.
The drop in profits reflected a 327 million franc revenue boost Credit Suisse recorded in the same period last year from the sale of its InvestLab fund platform.
The results also included provisions of 152 million Swiss francs for major litigation expenses, and restructuring expenses of 107 million francs.
Gottstein announced a broad range of cost-cutting measures in July, including merging the global markets trading division and advisory-focused investment banking and capital markets unit, in his first major strategic move since taking over as chief executive in February.
“We have once again proven the strength of our diversified business and we are confident that the refinements that we announced over the summer will provide further momentum as we complete the restructuring measures,” Gottstein said.
Investment banking profit climbs but wealth management earnings tumble
The newly-merged investment banking unit saw pre-tax profit rise to 370 million Swiss francs, with increased trading helping equity and fixed income sales and trading surge five and 10 per cent respectively, while capital markets and advisory revenue increased by a third.
Pre-tax income at Credit Suisse’s international wealth management unit fell 58 per cent to 215 million Swiss francs, with revenue slipping 20 per cent to 1.14 billion francs – a higher drop than analysts’ had predicted.
The division, which serves wealthy clients outside Switzerland and Asia, was also hit by lower recurring commission and fees as well as falling net interest income, with private banking revenue down eight per cent year-on-year.
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On conference calls following the results, executives conceded that lower interest rates and a depressed dollar meant the unit would be more reliant on transaction revenues and higher lending to drive growth in the coming quarters.
Credit Suisse said it expected revenues to be resilient in the coming months as clients engage in “elevated levels of transactional and trading activity, across both our wealth management and investment banking businesses” in response to macroeconomic uncertainties.