Credit Suisse risks 3rd straight loss on Trump tax overhaul
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 (US $2.33bil) hit from a US tax overhaul signed into law by President Donald Trump.
Unless the Zurich-based bank made significantly more than 1 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 meant both “Credit Suisse and UBS will have to book a loss,” Andreas Brun, an analyst at Mirabaud, said by phone.
“It won’t affect Credit Suisse’s share price since they’ve guided for it and the writedown doesn’t affect the regulatory capital,” Brun said.
“However, it doesn’t look nice for Credit Suisse to post another fullyear 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.
Tidjane Thiam announced a return on tangible equity target of as much as 12% by 2020 at the investor day in London on Nov 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, Credit Suisse said.
The bank will provide a more detailed account on the US tax reform’s impact with the release of its full-year results scheduled for Feb 14. The lowering of the corporate tax rate from 35% to 21% will benefit most companies but it also requires them to recalculate deferred tax assets that have accumulated on their balance sheets.
Bank of America Corp will also take a US$3bil charge and biotechnology company Amgen Inc announced a writedown of US$6bil to US$6.5bil.
“Credit Suisse anticipates that the reform will have a positive impact on the US economy and our activity levels in the US,” the bank said in a statement last Friday, particularly in investment banking activities in advisory and underwriting.
Spokeswomen Amy Rajendran declined to comment on whether the charge would result in a fourth-quarter loss. She said the bank would report results in February.
The writedown may result in a loss of between 900 million francs and 1 billion francs for 2017, said Daniel Regli, an analyst at Main First.
“I don’t believe that this will be a concern for shareholders, as the writedown isn’t relevant for the CET1 ratio and thus the dividend,” he said.
it doesn’t look nice for Credit Suisse to post another fullyear loss because of a one off regardless of all the progress they’ve made.
Andreas Brun