Credit Suisse trails peers as key businesses miss analyst estimates

Credit Suisse Group AG missed analyst estimates in key businesses and failed to capitalize on a trading rally that lifted rivals as Chief Executive Officer Thomas Gottstein reins in risk-taking following a series of missteps.
 

Net income dropped 38% to 546 million francs ($599 million), compared with expectations of 597 million francs, dragged lower by the key international wealth management and Swiss units. While the newly-formed combined investment bank did better, it still trailed Wall Street firms and peers such as UBS Group AG and Deutsche Bank AG in trading revenue.
 

The results sent shares of Credit Suisse down by the most in five weeks, the worst performer among European banks, even as it pledged to return as much as 2.3 billion francs to shareholders next year through buybacks and dividends.
 

Gottstein is simplifying the bank’s complicated structure and partially rolling back initiatives taken under his predecessor Tidjane Thiam to boost growth. He’s now asking shareholders to look past third-quarter results with the promise to resume buybacks. The bank also said it expects an increase in client activity at the investment banking and wealth businesses.
 

Credit Suisse said it aims to return as much as 1.5 billion francs to shareholders via buybacks next year, following its biggest rival UBS in signaling a return to buybacks after pressure from the Swiss regulator to conserve capital during the height of the pandemic. It also plans to pay a dividend of 765 million francs next year for 2020.
 

The issue of dividends and share buybacks has become a heated one in Europe. A few of the stronger banks in the region have started to lobby for a resumption of payouts again, led by the Swiss wealth managers as they seek to help revive flagging share prices. The European Central Bank -- which regulates rivals such as Societe Generale SA and Deutsche Bank -- has still to make a decision on when to allow banks to resume payments. The pandemic’s resurgence has complicated those discussions.
 

Credit Suisse set aside just 94 million francs last quarter to deal with an expected increase in bad loans from the crisis, less than half what analysts had expected. Even so, earnings fell short of estimates at the Swiss Universal Bank and at the main wealth management business.
 

Other key figures from Credit Suisse’s third quarter
 

• Loan loss provisions CHF94m vs CHF243m estimate
• International Wealth Management pretax profit CHF215m vs CHF282m estimate
• Swiss Universal Bank pretax profit CHF430m vs CHF474m estimate
• Investment Bank pretax profit CHF370m vs CHF222m estimate
• Net revenue CHF5.2b vs 5.3b estimate
• Common equity Tier 1 ratio 13% vs 12.5% estimate

In international wealth management, an increase in transaction-based revenue was more than offset by lower recurring commissions and fees. Across the wealth businesses the bank attracted 11.1 billion francs of net new money.
 

The newly formed investment bank came in ahead of expectations as capital markets deal-making rose 40%, or 52% in US dollar terms. Revenues from fixed-income sales and trading, the biggest contributor to the investment bank, rose just 1%, or 10% in dollar terms, compared with an average gain of 25% at the big Wall Street banks. At UBS, it jumped 41%.

Credit Suisse declined as much as 6.4% and traded 5.6% lower by 3:13 p.m. in Zurich.

Gottstein is attempting to clean up the bank after it was tied to two companies embroiled in scandals, Luckin Coffee and Wirecard AG. Credit Suisse, which had organized a margin loan for Luckin founder Lu Zhengyao, took a large hit in its Asia business earlier this year, setting aside about $100 million for soured loans that mostly related to three cases, the largest of which was Luckin. The bank also helped sell $1 billion of Wirecard-linked securities last year after questions were raised about the German company’s accounting.
 

Credit Suisse earlier this month tapped a former top rainmaker at Bank of America Corp. as it vies with UBS for ways to get more business out of the richest customers. The Swiss bank hired Christian Meissner to co-run a newly created group connecting entrepreneurs who are clients of its international wealth management unit with the services offered by the investment bank.
 

In asset management, Credit Suisse is closing down funds and laying off employees at its alternatives business in the US after several of the strategies struggled to perform in the volatility caused by the Covid-19 pandemic. The bank’s actions include shuttering a quantitative fund and taking a 24 million-franc charge on seed capital in a US real estate fund in the quarter, Chief Financial Officer David Mathers said in an interview, declining to name the funds.
 

Meanwhile, Royal Dutch Shell's third quarter adjusted earnings fell 80 per cent to $955 million but outperformed a company-provided average analysts forecasts of a $146 million profit, it said on Thursday.