Credit Suisse CEO un­der pres­sure af­ter first loss since 2008

The Pak Banker - - FRONT PAGE -

Credit Suisse re­ported its first full-year loss since 2008 af­ter book­ing a big im­pair­ment charge at its in­vest­ment bank­ing busi­ness, send­ing its share price tum­bling and pil­ing pres­sure on new Chief Ex­ec­u­tive Tid­jane Thiam.

The shares fell more than 13 per­cent to hit their low­est level since 1992 af­ter Switzer­land's se­cond-largest bank sig­naled a dif­fi­cult start to the year. Its stock price has fallen by a third since the start of 2016. Thiam, who was hailed as a star strate­gist and Asia ex­pert when he took over the bank in July, said he would stick with his plan to fo­cus more on wealth man­age­ment in emerg­ing economies and cut costs in the in­vest­ment bank, de­spite the tur­bu­lent start to mar­kets this year.

"We have a clear strat­egy, clearly we are im­ple­ment­ing it in dif­fi­cult mar­kets and our out­look for the first quar­ter re­mains very cau­tious," Thiam told an an­a­lyst call. "(We have) very unique mar­ket con­di­tions and they are chal­leng­ing, but fun­da­men­tally we are main­tain­ing the ob­jec­tives and the tar­gets we have pre­sented". The bank aims to gen­er­ate 9-10 bil­lion Swiss francs in pre­tax profit by 2018, and Thiam said it could use ex­tra cost cuts as well as rev­enue growth to hit the tar­get. Pre­tax profit at its core busi­ness shrank to just 88 mil­lion francs in 2015. Four months on from when Thiam set out his strat­egy, many an­a­lysts are still un­sure how Credit Suisse will hit growth tar­gets, which in­clude more than dou­bling Asia Pa­cific pre­tax in­come by 2018.

"Reach­ing the tar­gets by 2018 seems more un­re­al­is­tic than ever," Zuercher Kan­ton­al­bank an­a­lyst An­dreas Brun said. The bank posted a 2015 net loss of 2.94 bil­lion Swiss francs ($2.92 bil­lion), worse than the me­dian es­ti­mate of a 2.12 bil­lion loss in a poll. The ap­point­ment of Thiam, an in­sur­ance ex­ec­u­tive and for­mer Ivory Coast govern­ment min­is­ter, added $3 bil­lion to Credit Suisse's stock mar­ket value, but its share price is now down al­most 50 per­cent from its July peak, with an­a­lysts grow­ing in­creas­ingly skep­ti­cal. "We be­lieve that there are un­likely to be any mean­ing­ful pos­i­tive cat­a­lysts," wrote an­a­lysts at Deutsche Bank, who have a hold rat­ing on the stock.

Credit Suisse booked a good­will im­pair­ment charge of 3.8 bil­lion francs, mostly for the US in­vest­ment bank Don­ald­son, Lufkin & Jen­rette it bought in 2000. It also had 355 mil­lion francs in re­struc­tur­ing charges and set aside 821 mil­lion for le­gal cases. It saw net out­flows of funds in two of its three main wealth man­age­ment divi­sions in the last quar­ter, though its tar­get mar­ket of Asia Pa­cific was the ex­cep­tion. The fixed-in­come busi­ness at its in­vest­ment bank also strug­gled. Ri­val UBS this week an­nounced its best an­nual re­sults since 2010 al­though it also saw an out­flow of funds and weak­en­ing mar­gins at its flag­ship wealth man­age­ment busi­ness.

JP Mor­gan Cazen­ove an­a­lysts called Credit Suisse's re­sults "very messy", not­ing an un­derly- ing loss be­fore tax ver­sus mar­ket ex­pec­ta­tions of a profit. The bank's com­mon equity tier 1 cap­i­tal ra­tio of 11.4 per­cent also lagged con­sen­sus de­spite a 6 bil­lion franc cap­i­tal rais­ing last year, it noted.

Thiam did not di­rectly an­swer a ques­tion on if he would rule out ask­ing in­vestors for more cash, stress­ing he was glad the bank did a cash call last year and not­ing the planned list­ing of its Swiss bank unit next year would raise 2-4 bil­lion francs. Credit Suisse said it had ac­cel­er­ated cost sav­ings to lock in 1.2 bil­lion of the tar­geted 3.5 bil­lion francs by 2018, with around 4,000 jobs be­ing cut. At Wed­nes­day's close, its stock traded at 10 times for­ward earn­ings, a dis­count to UBS (UBSG.VX) on 11 times and Julius Baer (BAER.VX) on 11.4 times, ac­cord­ing to StarMine, which weights an­a­lyst es­ti­mates by pre­vi­ous fore­cast­ing ac­cu­racy.

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