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Credit Suisse scales back investment banking as earnings beat estimates

A Credit Suisse logo in the window of a Credit Suisse Group AG bank branch in Zurich, Switzerland, on Thursday, April 8, 2021.

Stefan Wermuth | Bloomberg | Getty Images

Credit Suisse has beaten analyst estimates for the third quarter, but took a hit from charges settling allegations of corruption in Mozambique and other legal issues.

The Swiss bank also revealed that it expects to report a net loss in the final quarter of 2021 and said it plans to scale back its investment banking operations.

Credit Suisse said Thursday that net income attributable to shareholders came in at 434 million Swiss francs ($476 million) for the third quarter, above analyst estimates of 333.8 million Swiss francs according to data from Refinitiv. However, the third-quarter results were down over 20% from a year earlier.

The bank said gains in its income was hit by “major litigation charges” of 564 million Swiss francs, including 214 million Swiss francs relating to its settlement over the “Mozambique matter” and “litigation provisions in connection with certain other legacy matters.” The Swiss bank has been fined by global regulators following a corruption scandal involving the Mozambique’s tuna fishing industry.

Credit Suisse also reported that revenue rose to 5.4 billion Swiss francs in the third quarter, from 5.2 billion Swiss francs a year ago, and that its CET 1 ratio, a measure of bank solvency, was 14.4%, up from 13% a year earlier.

Scaling back investment banking

Credit Suisse also announced a number of changes to its organizational structure.

From January, the bank will reduce its business in investment banking, exiting the majority of its prime services business. As such, it expects equity sales and trading revenues to fall in the coming months.

“Our objectives are clear: we want to become a stronger, more customer-centric bank that puts risk management at the very core of its DNA to deliver sustainable growth for investors, clients and colleagues,” Thomas Gottstein, chief executive officer of Credit Suisse, said in a statement.

The bank said that, from January, it will be organized into four divisions (wealth management, investment bank, Swiss bank and asset management) across four locations (Switzerland, Europe, Middle East and Africa, Asia Pacific and the Americas.

It announced a renewed focus on its wealth management division. Net revenue at this unit rose 3% to 3.3 billion Swiss francs in the third quarter, with assets under management up 9% to 843 billion Swiss francs.

“Wealth Management businesses returned to robust net new assets and higher transaction revenues sequentially, while recurring commissions & fees and client business volumes demonstrated strong year on year momentum,” the bank said in its earnings release Thursday.

Credit Suisse’s investment banking division revenue rose 10% to 2.5 billion Swiss francs.

Outlook

Looking ahead, the bank said it expects market volumes to slow in the coming weeks as things settle down following the volatility sparked by the coronavirus pandemic.

“Overall, we expect to see a further reduction in market volumes for the remainder of 2021 as the trading environment normalizes compared to the elevated levels seen in 2020, particularly as central banks begin to signal the end of the monetary support provided during the COVID-19 crisis,” it said in its release.

The Federal Reserve said Wednesday that it will soon start reducing the pace of its monthly bond purchases, as it looks to scale back its massive stimulus program.

The bank said it would report a loss in the fourth quarter of this year due to an impairment of 1.6 billion Swiss francs relating to its acquisition of investment company Donaldson, Lufkin & Jenrette in 2000.

Shares of the Swiss bank are down 12% year-to-date.

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