Credit Suisse posted a profits while the Street awaited more losses

Credit Suisse posted a net profit of 170 million SFr, compared to 1.05 Billion in the same quarter last year. Nevertheless, it is better than the analyst consensus who expected a deepening of the yearly losses.

The good:

Costs were 8% below consensus. One of Thiam’s priority is to make the bank run more efficiently, and this is the first time we witness that his strategy is finally bearing fruit. The company is on track to meet its cost cutting target for the year of 1.7 billion francs.  Wealth management, the other priority, also managed to continue attracting funds with Net New Assets up 5.4 Billion francs, despite the geo-political challenges in Europe. This is clearly helped by Credit Suisse’s global footprint.

The not so good:

Like the other investment banks who reported, Credit Suisse investment bank division benefitted from higher trading volume on the days following the Brexit vote. This is a one-time event, and it would be preferable to see rising profits in the Wealth Management business. On the contrary, both Asia Pacific and international wealth management divisions showed slowing profits compared to last year.

What to expect next?

The environment will remaining challenging. The Brexit story will continue to have unprecedented impact on the political landscape, not just in Europe, but also into the US elections.  This will dampen investors’ confidence, especially for Private Banking clients. Interest rates will remain low globally. The Fed decided to keep its rates on hold one more time, the BOE will almost certainly cut, and the ECB, BoJ and SNB will remain highly accommodative given the global deflationary pressure. The second largest Swiss bank also has important operations in London, which for now remains a question mark.

Having said that, Credit Suisse is one of this unloved story, with an important level of short positions. At 50% discount to its book value, the stock price seems cheap for a major bank with a global footprint. So for those who can look beyond the current challenges, and the expected volatility in the stock price, Credit Suisse offers good value over the longer term.

ANDREAS RUHLMANN
IG Bank S.A., Market Analyst