Wealth unit helps Credit Suisse
ZURICH, July 24 (Reuters) – Credit Suisse posted a smaller-than-expected fall in second-quarter earnings on Thursday as it managed more cash for the world’s wealthy and its investment banking unit returned to profit.
The Swiss bank’s earnings easily beat analysts’ forecasts, despite falling 62 percent to 1.2 billion Swiss francs ($1.16 billion), due to smaller asset writedowns than expected and as its investment bank, private bank and asset management business all posted profits.
A Reuters poll of analysts had forecast net profit of 526 million francs.
Its shares jumped over 8 percent early in the day and by 1010 GMT were up 5 percent at 52.40 francs.
A reduction in risk exposure, the small writedown and strong inflows for private banking were all positive, analysts said.
The first results from a big European bank for the second quarter also backed up signs from U.S. peers that banks could be through the worst of the writedowns sparked by the subprime mortgage crisis and subsequent credit squeeze.
“(It’s) a result that could be the confirmation of the beginning of the end of the financial crisis,” said Georg Kanders, analyst at WestLB.
Credit Suisse, which has reported billions of francs in losses stemming from the credit crunch and was forced to admit billions more from a trading scandal, said volatile market conditions would continue but this also offered opportunities.
“At a time when many competitors are questioning their business models, our strategic direction is clear and consistent,” said Chief Financial Officer Renato Fassbind, adding the credit crunch “is definitely still here” and volatility would last into the medium term.
“Given our strength, this period of change in our industry will provide Credit Suisse with unprecedented opportunities,” he told reporters on a conference call.
The Swiss bank — which has emerged less damaged from the turmoil than some big names, notably local rival UBS — said its wealth management unit attracted net funds of 15.4 billion francs, more than twice the forecast amount and up from 13.3 billion a year ago.
The inflow last quarter included about 3.5 billion francs in Switzerland, Fassbind said.
“The main positive within the result was the massive net new money inflow into the wealth management operation,” Dirk Becker, analyst at Landsbanki Kepler, said in a note.
“Apparently, it was able to capitalise on the problems of its peer UBS and is winning market share in this highly attractive business,” he added.
Its private banking margin of 1.16 percent was up from 1.13 percent a year ago, and the bank said it was confident it would stay between 1.1 and 1.17 percent.
INVESTMENT BANK BACK IN PROFIT
Credit Suisse has cut its risk exposure significantly since the third quarter and will continue to manage its balance sheet “prudently”, Fassbind said.
The strategic focus is on organic growth, he said, citing further expansion in private banking — it added 120 bankers in the second quarter — and improving the capital efficiency of its investment banking arm.
That area is under increased scrutiny since Swiss regulators said earlier this month they could impose more stringent capital rules for its flagship banks UBS and Credit Suisse.
Credit Suisse’s investment bank made a pretax profit of 281 million francs in the second quarter, sharply down from a record 2.5 billion a year before as revenues fell by half as the credit crunch hit origination activity, particularly for structured products and leveraged finance.
Underwriting and advisory revenues also fell.
But investment bank revenues were up from the first quarter, and expenses in the business dropped almost a third from a year before as bonuses fell.
Its net writedown of 22 million francs compared to a forecast for over 1 billion. In the first quarter its 5.3 billion franc writedown led to a loss of 2.1 billion, its first quarterly loss in five years.
But Credit Suisse has not had to turn to shareholders for cash, unlike UBS, Royal Bank of Scotland and other European rivals who have had to repair damaged balance sheets.
Its tier 1 capital ratio improved to 10.2 percent at the end of June, from 9.8 percent at the end of March.
Credit Suisse shares trade at 7.6 times forecast 2009 profit, a small premium to the European banking sector due to its more limited exposure to debt linked to subprime mortgages.