[July 22, 2014]ZURICH (Reuters) - Credit Suisse
Group AG reported its biggest quarterly loss since the peak of the
financial crisis in 2008, the result of a 1.6 billion Swiss franc ($1.78
billion) settlement with U.S. authorities over helping its clients evade
taxes.
The Swiss bank also said it would quit commodities trading,
reversing a statement of just two months ago, as it continues to
overhaul its investment bank to get back to double-digit capital
returns from its remaining activities.
Credit Suisse's fixed income unit outshone both its wealthy client
unit and its U.S. rivals with a 4 percent rise in sales and trading.
That compares to drops of at least 10 percent at American banks
including Goldman Sachs and JPMorgan last week.
Credit Suisse said the investment bank cuts would allow resources
and funds to be reassigned to its private bank, which disappointed
investors with a 39 percent drop in revenue and swung to a loss due
to the fine.
"I want to reiterate that we deeply regret the past misconduct that
led to this settlement and that we take full responsibility for it,"
Brady Dougan, chief executive of the Zurich-based lender, said on
Tuesday.
"The continued trust and support of our clients helped us mitigate
the impact of the settlement on our business.
Credit Suisse's private bank has been under scrutiny since the
bank's guilty plea to the U.S. criminal charge, with investors
worried about clients pulling money out of its wealth management
business as a result. Dougan said the bank's capabilities to offer
services to clients were not hampered as a result of the settlement.
The private bank won 10.1 billion francs of net new money in the
quarter - a key indicator of future revenue - which was slightly
above analysts' consensus for 9.27 billion francs.
"The guilty plea in the U.S. appears to have had no negative impact
on business and... we believe the shares remain attractively
priced," Nomura analyst Jon Peace said. He rates the stock at buy
with a 36 franc target price.
Pre-tax profit at Credit Suisse's investment bank, where it cut back
underperforming areas like its interest rate trading arm, was near
unchanged on the year at 752 million francs.
But the investment bank result failed to underpin the bank's shares.
At 0726 GMT, the stock was 1 percent lower, bucking a 0.5 percent
rise in the European sector.
QUITTING COMMODITIES
The bank said it would wind down its commodities trading, where it
is mid-sized player, joining the likes of investment banks like
Deutsche Bank, JPMorgan and Barclays that are either exiting or
significantly downsizing their activities in commodities.
Credit Suisse's exit leaves only a small number of players in
commodities trading, which had been seen as the absolute necessity
of investment banking only a few years ago, including Goldman Sachs,
Citigroup, Morgan Stanley and some new comers such as BTG Pactual.
The fixed income out performance, on the back of activities such as
mortgage servicing, helped it counter a drop in equity trading.
But the shifts in mix may not be enough to catch up to crosstown
rival UBS, the largest private bank in the world, according to
Espirito Santo Investment Bank.
"Overall, while the investment bank has outperformed this quarter,
private banking and wealth management continues to disappoint," said
Espirito's Shailesh Raikundlia.
"Given the focus on private banking to drive returns going forward,
we continue to believe that UBS' private banking franchise offers
higher returns potential than Credit Suisse’s."
ON TRACK
Credit Suisse wants to eventually return to double-digit capital
returns from its core investment bank, including its equities and
advisory divisions, following the overhaul.
The bank said on Tuesday it was on track to cut spending by 4.5
billion francs by the end of next year, having cut 3.4 billion. All
the measures form part of a plan to begin paying out roughly half of
profits once a key ratio, which stood at 9.5 percent in the quarter,
reaches 10 percent.
Credit Suisse's finance chief told journalists the bank, which paid
out 0.70 francs last year, had stowed funds for a cash payout for
this year, but that the ultimate level would depend on second half
business.
The bank swung to a second-quarter loss of 700 million francs, wider
than a Reuters analyst poll which called for a 581 million franc net
loss.
German lender Deutsche Bank and crosstown rival UBS both report the
quarter next Tuesday.
(Additional reporting by Oliver Hirt and Joshua Franklin in Zurich
and Dmitry Zhdannikov in London; Editing by Sophie Walker)
