Credit Suisse reports biggest quarterly loss in seven years

Credit Suisse Group AG posted the biggest quarterly loss in seven years as it wrote off goodwill and set aside provisions for litigation, while a drop in trading deepened losses in the securities unit. The shares slumped to the lowest since 1991.

The bank had a shortfall of 5.8 billion Swiss francs ($5.8 billion) after a profit of 691 million francs a year earlier, hurt by a goodwill impairment of 3.8 billion francs, it said in a statement on Thursday. Its biggest quarterly loss since 2008.

Chief Executive Officer Tidjane Thiam, 53, has pledged to focus the second-largest Swiss bank on wealth management to tap growth across Asia with the securities divisions hurt by tougher capital rules and a drop in revenues. Credit Suisse will accelerate the implementation of its cost-cutting program, including 4,000 job cuts, citing a "particularly challenging environment."
 

"The numbers are terrible," said Dieter Hein, an analyst at AlphaValue based near Frankfurt who is reviewing his recommendation on the shares. "The bank has started on its new strategy and is finally moving away from investment banking. In the mid- to long-term, it's right to focus on growth in Asia, but what bad timing given the current environment."

The shares decreased as much as 13 per cent to the lowest since 1991 and were down 11 per cent at 14.64 francs at 11:24 am in Zurich. They have dropped about 33 per cent this year, while larger rival UBS Group AG lost 23 per cent.

In the fourth quarter, Credit Suisse took restructuring costs of 355 million francs and litigation charges of 564 million francs. The common equity Tier 1 ratio, a measure of financial strength, was at 11.4 per cent, up from 10.1 per cent a year earlier after the bank tapped investors for about 6 billion francs last year.

Banks around the globe are shrinking their investment- banking divisions amid tougher capital requirements and a slump in revenue. At Deutsche Bank AG, the securities unit slipped into a loss in the fourth quarter, as co-CEO John Cryan seeks to cut costs and boost profitability by eliminating thousands of jobs. UBS on Tuesday reported a drop in profit at its wealth management division and investment bank.

'Significant' Losses

Revenue at the units that house trading, advisory and underwriting businesses outside of Switzerland and Asia, slumped 35 percent to a combined $1.5 billion. Excluding goodwill impairments and restructuring costs, the units posted a pre-tax loss of $761 million combined for the period, compared with a profit of $516 million a year earlier.

"What we're doing is really de-risking -- getting out of relatively illiquid, long-dated activities," Thiam said in an interview with Francine Lacqua on Bloomberg TV . The global markets and investment banking divisions will probably struggle the most this year because "they're the ones we control the least."

The Swiss Universal Bank, which is earmarked for an initial public offering by the end of 2017, reported a 48 percent drop in pretax profit to 367 million francs in the fourth quarter, with net asset outflows of 2.9 billion. The International Wealth Management unit had a loss of 20 million francs in the period, with private banking hurt by net asset outflows of 4.2 billion francs, while Asia Pacific reported a loss of 617 million francs.

Thiam said that the bank is "very confident" about reaching its target of cutting costs by 3.5 billion francs by 2018. The lender's cost-to-income ratio, a measure of efficiency, almost tripled 250 percent in the fourth quarter, with total operating expenses at 10.5 billion francs.

'Very Poor'

Credit Suisse's costs were higher than anticipated, even when stripping out the charges for litigation and restructuring, according to Shailesh Raikundlia, an analyst at Haitong Securities in London, with a neutral recommendation on the shares.

"We view these as very poor results," Citigroup Inc. analysts including Andrew Coombs with a buy recommendation on the shares wrote in a note to clients. "We do not believe the 2018 targets are achievable. We expect near-term profits will continue to suffer as the bank restructures."

Credit Suisse cut overall variable remuneration by 11 percent, with bonus reductions of more than 30 percent at divisions such as global markets "that have underperformed," Thiam said. The Global Markets and Investment Banking & Capital Markets will probably struggle the most this year, he said.

"They are the ones we control the least," Thiam said. "We want to have an investment bank with stable earnings. It will be smaller, consume less capital and be more profitable, which are three good things to do at the same time."

Asked whether Credit Suisse considers selling a large part of its investment bank, Thiam said "no, absolutely not," adding that it's "core to our strategy."

The bank proposed a dividend of 70 centimes per share with an option for shareholders to get stock instead.

"Credit Suisse's investment case is especially dependent on future earnings growth," Andreas Brun, an analyst at Zuercher Kantonalbank who has a market weight on the shares. "Even to just get in the direction of their goals, they need the market as a tailwind. But at the moment they have rough winds blowing at them from all directions."