(Bloomberg) -- For investors who’ve stayed with Credit Suisse Group AG Chief Executive Officer Tidjane Thiam through his three-year turnaround, higher returns may finally be on the horizon.

The bank’s results in the second quarter add to signs the restructuring of the Zurich-based bank is nearing completion: the key wealth management business did better than expected and the firm added about 9 billion francs ($9.1 billion) of private banking assets while some rivals saw outflows. Only the trading business missed estimates, trailing gains at its Wall Street rivals.

The results underscore how far Thiam’s three-year turnaround plan has progressed, after the bank tapped investors for more than 10 billion francs of capital, pared back trading in New York and London and focused on managing money for the wealthy. With higher profit and stronger capital, Thiam can now think of boosting shareholder returns. Zurich rival UBS Group AG said earlier this year that it plans to buy back as much as 2 billion francs of stock.

‘Well Positioned’

“We see Credit Suisse as well positioned to announce buybacks” at its investor day later this year, Citigroup Inc. analysts including Andrew Coombs wrote in a note. “Our buy-back thesis, which we believe is underestimated by the market, appears to be well on track.”

Credit Suisse rose 2.7 percent at 1:43 p.m. in Zurich trading, paring declines this year to 5.4 percent.

The bank will always seek to return as much capital as is safe, Thiam said in response to questions about potential returns on a conference call. He said he wouldn’t try to hold onto cash that can’t be put to profitable use.

The bank’s net revenue of 5.6 billion francs beat estimates, with the Swiss Universal bank doing better-than-expected on revenue and profit and the international wealth management business posting profit of 461 million francs. Global markets has been a continued drag on the bank’s performance, though the investment bank rebounded.

Earnings Quality

“The quality of the earnings is high,” Kian Abouhossein, an analyst at JPMorgan Chase & Co., said in a note to clients. “Results are better than expected in all divisions except global markets,” the main trading business.

Thiam defended the trading business in a Bloomberg Television interview, saying the unit doesn’t chase standalone revenue but instead aims to serve clients’ needs.

The “strategy is not to maximize standalone revenue” in the global markets business, he told Bloomberg TV’s Francine Lacqua. “We have taken a different path, which is to use global markets to serve our clients.”

The business, led by Brian Chin, has steadily become less important since the overhaul started as Thiam sought to lower the bank’s reliance on volatile-trading. The bank exited distressed-debt trading after heavy losses and has also slashed other areas such as trading of securitized products in Europe, while downsizing foreign-exchange and macro-trading. Still, in revenue terms the business is bigger than international wealth management.

Rising Affluence

Thiam, a former insurance executive, is betting on rising emerging-market affluence to help drive earnings in regions such as Asia and Latin America. The CEO is boosting collaboration between the firm’s wealth units and pared down trading businesses. He’s also putting deal-makers alongside private bankers in client meetings with the aim of devising financing ideas for their companies as well as topics such as their personal wealth and succession plans.

Swiss rival Julius Baer posted a net new money growth rate of 5.1 percent in the first half and had disappointed investors due to lower recurring revenues and low growth in assets under management, while UBS Group AG saw outflows because of U.S. tax season.

“I really like the wealth management story,” at Credit Suisse said Thomas Braun, a fund manager at BWM AG, who holds the stock. “Its good they are bringing in new assets while being disciplined on costs.”

Other highlights of the earnings release included:

  • Net income more than doubles to 647 million francs
  • Net revenue was about 7 percent higher
  • Global markets revenue declined about 6 percent
  • International wealth management added 5.2 billion francs of assets

To contact the reporter on this story: Jan-Henrik Förster in Zurich at jforster20@bloomberg.net

To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net, Ross Larsen

©2018 Bloomberg L.P.

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