Crédit Suisse reconfirms its turnaround strategy is on its way

Credit Suisse posted a surprise profit of 41 million Swiss franc, while the market consensus was expecting a loss of 150 million, yet the stock opened 3% lower at the open and continued falling throughout the session. The gain is mainly attributable to its Investment Banking division which was helped by a surge in fixed income volume across the whole industry. The Zurich-based bank also benefitted from a one-time property sale of 346 million at its Swiss universal Bank unit.

The market disappointments mainly came from weak trading revenue on equities and lower margins across its private banking business. In fact, political events and uncertainty are cooling investors risk tolerance, and this is not expected to change next year with the upcoming Italian referendum, the French election and the Britain/EU negotiations. This may also force central banks to keep rates low. However this macro headwinds weight on the whole banking sector, and there is little that Credit Suisse can do to influence it.

Shrinking margin at its core business of wealth management on the other hand is concerning. However like in Q2, Credit Suisse kept on reassuring in Q3 on a number of points, which overtime should help reverse margins positively. Indeed the second largest Swiss bank is well ahead of plan on cost cutting with 1.46B savings year to date compared to the whole year target of 1.4B. Part of its restructuring plan, the group reduced headcount by 5400 out of the 6000 planned for 2016. Net new money continued to attract more assets adding 30.9B in the first 9 months of the year, which is 40% more compared to 2015. 2/3 of net new money came from high growth emerging markets, a priority for CEO Tidjane Thiam.

Most reassuring is that even without the Swiss Universal Bank IPO, Credit Suisse managed to deleverage significantly with the CET1 ratio reaching 12% from to 11.8% last quarter and 10.8% in Q3 2015. Leverage ratio also rose to 3.4% from 3.3% in Q2 and 2.8% last year.

Credit Suisse ended the day 6% lower, which seems severe. Having said that, the stock had rebounded over 40% since July and some profit taking is all logical in an environment which will remain challenging for the sector.

ANDREAS RUHLMANN
Premium Client Manager / Market Analyst  – IG Bank