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Credit Suisse banks on conservative image

Credit Suisse strives to keep ahead of the game Keystone

Credit Suisse has downplayed a fall in 2010 profits by seeking to cash in on its reputation for safety and prudent forward planning.

It announced on Thursday that net profits fell by a quarter to SFr5.1 billion ($5.31 billion).

The Swiss bank escaped the worst ravages of the financial crisis by spotting the mortgage backed securities bubble before it burst. It now claims to be ahead of the curve with a strategy to cope with the new regulatory landscape.

“We have emerged from the regulatory uncertainty that the rest of the industry is still experiencing,” chief executive Brady Dougan told journalists in Zurich on Thursday.

“Most of our competitors are engaged in a debate over a long list of potential regulatory measures, where it will end up and how it will affect them. We are out in front of the industry in transitioning to the new environment.”

No move from Switzerland

Dougan added that Credit Suisse would not need to consider moving risky operations to less stringent regimes than Switzerland – an possibility mooted by rival UBS earlier this week.

Global regulators have been busy putting together a series of regulatory changes to help avoid another financial crisis that require banks to be bailed out by tax payers. But the final global picture is still unclear, causing confusion in the banking community.

The Basel Committee on Banking Supervision, that sets international regulatory standards, has produced a package of measures (known as Basel III) that would require banks to set aside greater capital reserves to cover risks.

Swiss finish

Switzerland has produced even more stringent rules that include more exacting demands on the country’s two banks that are deemed “too big to fail” – Credit Suisse and UBS. These proposals will be debated by the Swiss parliament this year.

It is not as yet known if Basel III will be complemented by “too big to fail” measures or how other countries will implement rules. At present, the “Swiss finish” regulations require Credit Suisse and UBS to hold nearly three times the global standard capital risk reserves, but other countries could reduce the gap with their own measures.

In the meantime, Credit Suisse is positioning itself as the bank with the clearest crystal ball and the greater will to act with enough speed to deal with the new landscape.

But Bank Sarasin analyst Rainer Skierka warned the bank not to over-play its hand until it could match words with deeds.

Investment banking problems

“They were more professional during the financial crisis, but it might not be the right thing to play too much on history,” he told

“It is a good message that they will continue to play conservatively, but this must be shown in the financial performance of the group.”

The biggest problem posed by increased regulations for both Credit Suisse and UBS lies in investment banking, added Skierka. The proposed new capital requirement rules are precisely aimed at softening risk in these activities by demanding banks to put aside more capital to cover trades turning sour.

Fourth quarter pre-tax profits of SFr558 million at Credit Suisse’s investment banking division were 41 per higher compared to the previous three months. But an annual pre-tax profit of SFr3.53 billion was nearly 50 per cent down on 2009.

On Tuesday, UBS announced 2010 pre-tax investment banking profits of SFr2.2 billion – a marked improvement on a disastrous previous year, but still way short of the group’s targets.

“There is a parallel to be drawn between the weak results of both banks’ investment banking results,” said Skierka. “The cake seems to be becoming smaller while the capital requirements are getting higher.”

Announcing its annual results on Thursday, Credit Suisse also downgraded medium term performance targets first set in 2009. 

The most significant downgrade related to its return on equity (RoE) target from 18 per cent to just over 15 per cent in the next three to five years. RoE demonstrates how efficiently a company translates shareholders’ investments into profits and is a key indicator in the banking sector.

Though forced to back-track from earlier expectations, Dougan billed the new target as “best in class” and a demonstration that Credit Suisse is leading the field in terms of tackling the new regulatory environment.

2010 annual net profit: SFr5.1 billion (down 24% from 2009

Return on Equity. 14.1% (18% 2009)

Tier 1 capital ratio: 17.2% (16.3%)

Private Banking net-profit: SFr3.43 billion (-6%)

Investment Banking: SFr3.53 billion

Asset Management: SFr503 million

Net new money: SFr69 billion

Share dividend: SFr1.30 recommended (SFr2 in 2009) 

2010 annual net profit: SFr7.2 billion (SFr2.7 billion)

Return on Equity: 15.9% (-7.8%)

Tier 1 capital ratio: 17.7% (15.4%)

Wealth Management & Swiss Bank net profit: SFr4.1 billion (SFr3.9 billion)

Wealth Management Americas: -SFr131 million (+SFr32 million)

Asset Management: SFr503 million (SFr438 million)

Investment Bank: SFr2.17 billion (-SFr6 billion)

Net New Money: -SFr14.3 billion (-SFr45.8 billion)

Share dividend: no payout recommended as per 2009

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