By Katharina Bart
ZURICH (Reuters) - Speculation that incoming Credit Suisse Chief Executive Tidjane Thiam could have to raise cash to boost the bank's balance sheet overshadowed a forecast-beating increase in first-quarter net profit on Tuesday.
Tough new rules on risk and a surging Swiss franc weakened Credit Suisse's cushion against future losses in the first quarter. With regulators still working on capital requirements for banks' trading operations, there are potential headwinds to come.
"The risk is that the debate around the incoming CEO shifts from the potential for strategic change to the risk of capital raising," said Omar Fall, an analyst at Jefferies.
The Swiss bank's outgoing CEO, Brady Dougan, played down the prospect of a cash call, saying Credit Suisse can stow away capital from its operations.
However, capital fears preveailed and Credit Suisse dropped over three percent, making it one of the top fallers on the European banking index. By late morning it was trading down 2.69 percent against the index's 0.11 percent dip.
Thiam, chief executive of British insurer Prudential, is expected to take over from Credit Suisse veteran Dougan in the middle of June, the bank said.
He is expected to cut Credit Suisse's investment banking arm further to try to balance it more evenly with its less costly private banking activities.
VOLATILITY HELPS
Like larger U.S. rivals, Credit Suisse saw a jump in sales of bonds and shares due to market volatility and said the momentum had continued into the second quarter.
But Credit Suisse still has difficulty in reining in costs. It had to cut its cost savings target of 4.5 billion Swiss francs for this year to between 4 and 4.25 billion francs, citing issues in compliance and regulation.
The bank also warned that future legal bills not covered by provisions could cost it up to 1.8 billion francs.
New capital rules and more electronic trading have squeezed revenue from fixed income, currencies and commodities trading, or FICC, putting banks like Credit Suisse under pressure to carefully scrutinise which activities can turn an adequate profit to justify their capital requirements.
Overall, Credit Suisse generated net profit of 1.054 billion Swiss francs ($1.10 billion) in the quarter from 859 million francs a year ago, beating the average 1.034 billion francs estimate in a Reuters poll of analysts.
A gain on the accounting value of the Swiss bank's own debt of 117 million francs also contributed to the result.
U.S. investment banking rivals such as Goldman Sachs Group Inc reported healthy results for the quarter after notching up big trading gains.
The first quarter is traditionally a strong one for most investment banks, and this year the Swiss National Bank's abandonment of a currency cap, a flood of European Central Bank money, and expectations for a U.S. rate hike were a boon for volatility.
Credit Suisse's private bank, which caters to the financial needs of the wealthy, is the fourth-largest in the world, according to an annual benchmark compiled by Scorpio Partnership, but it is far smaller than UBS's.
The unit won 7 billion francs in net new money from clients in the quarter, which is a key indicator of future revenue.
(Writing by Carmel Crimmins; Editing by Keith Weir)
