Credit Suisse Seeks to Move Past 2020 With January Rebound

This content was published on February 18, 2021 - 10:44

(Bloomberg) -- Credit Suisse Group AG signaled a strong start to the year as clients trade and invest more, providing relief to Chief Executive Officer Thomas Gottstein after a first year marred by a series of legacy issues.

Switzerland’s No. 2 bank on Thursday posted its first quarterly loss in three years in an uneven quarter that saw it write down a hedge fund investment and set aside money for U.S. litigation. While its traders trailed Wall Street peers for a second straight quarter, equity-underwriting fees more than tripled and loan-loss provisions were less than forecast, helping to limit the damage.

Gottstein has spent his first year cleaning house after taking over in the wake of a damaging spying scandal. He merged the investment banking businesses into a single division and centralized controls after questionable dealings with a top client and missteps in asset management. After a mixed end to the year, Credit Suisse just finished its strongest January in a decade, Chief Financial Officer David Mathers told journalists on a conference call.

Shares of Credit Suisse fell as much as 1.9% in early Zurich trading before paring losses and trading 0.8% lower at 11:42 a.m. The stock is down about 3.9% since the end of 2019, trailing larger rival UBS Group AG, which gained 14%.

After hits related to U.S. legal charges and a hedge fund investment, the Swiss bank posted a net loss of 353 million francs ($393 million), compared with analyst estimates for a loss of about 529 million francs. Credit Suisse saw better-than- expected results across key divisions and posted loan loss provisions of 138 million francs that were also lower than forecast.

“We have seen significantly better results from peers vs expectations,” analysts at JPMorgan Chase & Co. led by Kian Abouhossein wrote in a note. “We expect investors to judge these sets of numbers as not good enough -- especially against UBS, which showed very strong results.”

While warning on the uncertainty caused by the ongoing pandemic, the bank said the early part of 2021 had seen a “substantial year on year increase in client activity.” That is benefiting key private banking business, while the investment bank is seeing higher trading and capital markets issuance.

The securities unit saw a mixed fourth-quarter, with fixed-income trading down 8.3% and equities revenue declining 4.6%. In dollar terms, which provide a better comparison with Wall Street, debt trading was flat and equities were up about 5% -- in a quarter where the largest U.S. firms reported average gains of almost 10% and 35%, respectively.

Revenue from capital markets jumped 74% from a year earlier, extending a lift in the third quarter. The bank is benefiting as clients tap surging capital markets for cash, including for so-called special purpose acquisition vehicles. Credit Suisse’s former CEO, Tidjane Thiam, is among investors seeking to cash in on the boom with plans to raise $250 million for his own SPAC.

Overall results were also helped by the rising valuations of Credit Suisse’s stake in the Swiss stock exchange, which in April raised 675 million euros from the sale of shares in payments company Worldline SA. The value of the bank’s investment in fund-distribution business Allfunds, which is said to be planning an initial public offering, also rose. The two investments added an additional 285 million francs of exceptional revenues in the quarter.

Fourth-quarter highlights:

  • International wealth management pretax loss 12m francs vs estimates for 41.2 loss
  • Net revenue 5.2b francs vs 5.1b estimate
  • Swiss Universal Bank pretax profit 487m francs vs 423.9m estimate
  • APAC pretax profit 237m francs vs 161.6m estimate

A two-decade Credit Suisse veteran, Gottstein took over in February 2020 after revelations that the bank had spied on employees led to the ouster of Thiam. He vowed to restore calm while continuing the strategy of his predecessor, who had scaled back volatile trading and tied the investment bank more closely to the needs of the bank’s wealth management clients, offering bespoke deals or loans against their assets.

(Adds analyst’s comment in sixth paragraph.)

©2021 Bloomberg L.P.

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