Market volatility boosts revenue at Credit Suisse - http://allcharts.co.za |

February 14, 2018 9:35 am
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Chief executive Tidjane Thiam says the bank’s three-year restructuring plan is starting to pay off © Bloomberg

Credit Suisse’s revenue from markets rebounded by more than 10 per cent in the first six weeks of the year, offering the strongest evidence yet that the recent resurgence in volatility could lift investment banks out of a trading slump.

The world’s biggest banks blamed low volatility for weak trading revenues in 2017 but volatility has rebounded sharply in the past few weeks, after Wall Street suffered its worst day in six years and the markets’ fear index rose. 

Announcing Credit Suisse’s third consecutive annual loss on Wednesday, chief executive Tidjane Thiam said that the bank was already enjoying better market conditions. He added that it was able to better capitalise on these conditions because of the bank’s three-year restructuring

“We have focused relentlessly for two years now on reducing our fixed cost base to increase our resilience in supportive markets and increase our leverage in constructive markets,” he said. 

“In the first six weeks of the year, we have seen evidence that this approach is paying off.”

Mr Thiam said net revenues were up by more than 10 per cent in its global markets division and more than 15 per cent in Asia-Pacific markets year on year.

Credit Suisse shares rose 2.7 per cent after the news.

In a call with analysts, Mr Thiam said that high levels of volatility had hit the bank’s “primary” business — advising clients on selling debt and equity — “as clients wait for calm in the market”, but that they were still having good quality discussions. This falls under Credit Suisse’s investment banking and capital markets division, which beat analysts’ expectations in the fourth quarter by recording adjusted pre-tax profits of SFr121m ($129.7m). 

The global markets division made pre-tax losses of SFr195m ($209m) in the final quarter of last year, far worse than the SFr76m loss predicted by analysts, as revenues from equities trading fell 27 per cent year on year. 

Earlier this month, Credit Suisse was forced to liquidate a product whose value moved inversely to the Vix volatility index, but the bank said at the time that it suffered no financial losses as a result. The ‘VelocityShares’ product, which was once valued at $2.2bn, lost 96 per cent of its value overnight after Wall Street’s February 6 meltdown. 

Overall, Credit Suisse made adjusted pre-tax profits of SFr569m ($610m) for the fourth quarter compared with analyst expectations of SFr416m ($446m). “Results are better than expected across all divisions except global markets,” said Kian Abouhossein, banks analyst at JPMorgan, who noted the “very positive” outlook on trading for 2018.

Piers Brown, banks analyst at Macquarie, said the “key positive” was private banking. Adjusted fourth quarter pre-tax profits at Credit Suisse’s international wealth management arm — a mainstay of the group under Mr Thiam’s restructuring plan — were SFr410m ($440m) for the fourth quarter, better than the SFr379m analysts predicted.

Credit Suisse’s Asia-Pacific and Swiss private banks also beat expectations, as did the Asia-Pacific and Swiss divisions overall. 

Credit Suisse said it expected the US tax changes to increase its return on tangible equity by at least 1 per cent assuming the bank is not captured by a new tax on intercompany payments, dubbed Beat. “It is most likely that we will not be captured by this tax,” chief financial officer David Mathers told analysts, adding that if Credit Suisse did have to pay Beat it would “offset most of the benefits” of the US’s lower corporate tax rate.

The Swiss bank reported a net loss of SFr983m ($1.05bn) for 2017 after taking a previously-announced SFr2.7bn ($2.9bn) hit as a consequence of US tax reforms. That was better than losses of SFr2.7bn in 2016 and SFr2.9bn in 2015, when Mr Thiam joined the bank and began his restructuring with a SFr3.8bn goodwill write off.

Credit Suisse also admitted on Wednesday that US authorities were investigating whether it hired well-connected Chinese “princelings” in exchange for investment banking business.

The bank said it was in contact with the Department of Justice and the SEC about its hiring in Asia because of “potential violation of the US Foreign Corrupt Practices Act”.


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