Credit Suisse puts global competition in shade

Reuters

Swiss bank Credit Suisse has outperformed international competitors with a better-than-expected SFr2 billion ($1.7 billion) profit in the first three months of the year.

The bank continues to attract new money from wealthy clients, but the key to success has been an impressive investment banking performance – the very activity that brought the industry to its knees.

The news from Credit Suisse provides one of the few rays of hope for a banking industry still mired in the aftermath of the financial crisis. UBS expects to lose the same amount as its Swiss rival gained in the first quarter.

Japanese bank Nomura and the Mizuho Financial Group also warned of heavy annual losses on Thursday, following hard on the heels of a second straight quarterly loss from United States giant Morgan Stanley. Credit Suisse has few other peers at the moment, apart from Goldman Sachs.

Bank Sarasin analyst Rainer Skierka believes Credit Suisse’s results can be viewed in an even more impressive light when compared with other banks that have adopted new accountancy rules that flatter their figures.

“It’s important to put them into an even more positive international context because their accounts are pretty clean. They have no accounting gimmicks to support the results – they are all earned,” he told swissinfo.

So just what has Credit Suisse done right compared with its mighty rivals around the world? To start with, the bank did not get it so wrong in the first place.

It did manage to rack up a record SFr8 billion loss last year and had to shed thousands of jobs after fouling its balance sheets with toxic assets. But its writedowns paled in comparison with UBS and many other banks, and it did not need a state bailout.

Adaption

Chief executive Brady Dougan also introduced a new investment banking strategy, exiting the wrong markets and focusing on the right ones as others were winding down their activities.

Skierka is particularly impressed that little of the division’s revenues derived from lucky bets.

“They adapted to the changing market conditions in the right way to increase their market standing. I have come to the conclusion that it is sustainable because the one-off windfall profits were not that substantial to distort the positive trend,” he told swissinfo.

However, other observers are more wary about predicting velocity and direction of the Credit Suisse train. “It’s going to be very difficult to sustain this pace throughout the year,” Zurich Cantonal Bank analyst Andreas Venditti told swissinfo.

Confidence

One other piece of good news to come from Credit Suisse was the SFr11.4 billion of client wealth it attracted in the first quarter.

There were concerns that Switzerland’s vice-like grip on wealth management would loosen following the release of confidential client data to the US tax authorities and a concerted international attack on tax havens this year.

These concerns were heightened by the withdrawal of SFr23 billion of assets from UBS in the first quarter. But Credit Suisse’s results seem to show that confidence in the Swiss system remains intact.

“We had fears that the tax case that was brought against UBS [by the US] would contaminate the whole Swiss private banking industry. That is obviously not the case,” Helvea analyst Peter Thorne told swissinfo.

swissinfo, Matthew Allen in Zurich

Credit Suisse Q1 results

Credit Suisse’s performance has improved since the bank recorded a SFr8.2 billion loss for the full year of 2008.

The first three months of this year have brought in a net profit of SFr2.4 billion.

This is also a significant improvement on the SFr2.1 billion loss in the first quarter of 2008.

Its investment banking division led the way, returning to profitability with a pre-tax income of SFr2.4 billion.

Wealthy clients continued to invest their money at Credit Suisse’s private banking unit that saw net inflows of SFr11.4 billion in the first three months of this year.

However, the bank still has risky assets on its books and was forced to write-down SFr1.4 billion of commercial mortgage-backed securities.