Credit Suisse fears third straight yearly loss

ZURICH: Credit Suisse Group AG is at risk of posting a third consecutive annual loss after predicting it will take a 2.3 billion-francs (RM9.5 billion) hit from a United States tax overhaul signed into law by President Donald Trump.

Unless the bank made significantly more than one billion francs in the last quarter, the writedown could trigger yet another yearly deficit for the lender, which had a net income position of 1.14 billion francs after nine months.

The new tax bill means both “Credit Suisse and UBS will have to book a loss,” said Andreas Brun, an analyst at Mirabaud.

“It won’t affect Credit Suisse’s share price since they’ve guided for it and the writedown doesn’t affect the regulatory capital,” said Brun.

“However, it doesn’t look nice for Credit Suisse to post another full-year loss because of a one-off regardless of all the progress they’ve made.”

Credit Suisse has sought to reassure investors by saying that the policy for returning capital to shareholders remains unchanged and that the one-time accounting adjustment will have a “minimal” effect on the capital position.

Chief executive Tidjane Thiam announced a return on tangible equity target of as much as 12 per cent by 2020 at the investor day in London on November 30, the first profitability target under his tenure.

The new tax on services and interest payments to affiliates outside the US is “likely to have a negative impact” on tax liabilities in 2018, said Credit Suisse. The bank will provide a more detailed account on the US tax reform’s impact with the release of its fullyear results scheduled for February 14.

The lowering of the corporate tax rate from 35 per cent to 21 per cent will benefit most companies, but it also requires them to recalculate deferred tax assets that have accumulated on their balance sheets.

“Credit Suisse anticipates that the reform will have a positive impact on the US economy and our activity levels in the US,” said the bank in a statement on Friday, particularly in investment banking activities in advisory and underwriting. Bloomberg