Credit Suisse CEO under pressure after first loss since 2008
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.