Oct. 25 (Bloomberg) -- Credit Suisse Group AG, the second- biggest Swiss bank, increased a target for cost reductions after posting a drop in third-quarter profit that exceeded analysts’ estimates on an accounting charge related to its own debt.
The bank plans to save an additional 1 billion francs ($1.07 billion) in costs by the end of 2015, adding to the 3 billion-franc savings programs already announced, Zurich-based Credit Suisse said in a statement today. Net income fell 63 percent to 254 million Swiss francs a year earlier, missing the 415 million-franc mean estimate of nine analysts surveyed by Bloomberg.
Chief Executive Officer Brady Dougan is cutting costs and accelerating a capital buildup as Europe’s sovereign-debt crisis curtails client activity and hurts earnings. The bank booked a pretax charge of 1.05 billion francs in the quarter because of an accounting rule tied to the theoretical cost of buying back the bank’s debt as market prices fluctuate.
“We have realigned our business to better meet the demands of a changed regulatory and market environment and, in doing so, have substantially reduced risks,” Dougan said in a statement today. “At the same time, we have significantly cut costs and improved efficiencies across the bank. We are committed to deliver additional cost savings in subsequent years.”
Unit Breakdown
Credit Suisse gained 24 percent in Zurich trading since July 18, when it announced plans to cut an additional 1 billion francs in costs by the end of 2013 and boost capital by 15.3 billion francs after the Swiss National Bank called for a “marked increase.” The stock is down 3.4 percent this year, compared with a 15 percent gain in the 38-company Bloomberg Europe Banks and Financial Services Index.
The investment bank posted a pretax profit of 508 million francs in the third quarter, compared with a loss of 720 million francs in the year-earlier period. Earnings in private banking jumped to 689 million francs from 207 million francs a year ago, when Credit Suisse booked provisions related to German and U.S. probes into alleged tax evasion by some clients. Asset management profit rose to 222 million francs from 97 million francs, helped by a 140 million-franc gain on the sale of a 7 percent stake in Aberdeen Asset Management.
The U.S. Federal Reserve’s third round of quantitative easing “has had a positive impact on investment bank revenue streams,” Teresa Nielsen, a Zurich-based analyst at Vontobel, said in a note to clients before today’s release.
Under Pressure
Credit Suisse, which announced 3,500 job cuts last year, said in July it aims to lower costs at the investment bank by an additional 550 million francs, and by about 450 million francs at the private bank by the end of next year. About half of those savings will come from more efficient use of shared services such as information technology, the bank said.
The firm plans to “rationalize” the securities unit’s advisory and underwriting businesses to bring them “in line with the market environment,” get rid of duplications between country, product and industry teams, and consolidate execution into hubs in the U.K. and Hong Kong, the bank said in July.
Credit Suisse is considering selling its exchange-traded- funds business, and doesn’t plan other asset-management sales, the company said today.
The investment bank in the Asia-Pacific region will focus on the largest markets with a “distinct competitive advantage,” it said. In private banking, Credit Suisse will streamline support functions.
Profitability in wealth management is under pressure as the erosion of bank secrecy leads to withdrawals of offshore funds from Switzerland, while stricter compliance rules and regulation are driving up costs.
Credit Suisse has seen 32 billion francs in outflows from “mature markets” such as western Europe in the three-and-a- half years through June, Chief Financial Officer David Mathers said at an investor presentation in New York last month. The bank’s cross-border business may see as much as 35 billion francs in further outflows in coming years, he said.
The bank had a 5.1 billion-franc net new money inflow at its wealth management unit in the third quarter, including an outflow of 3.6 billion francs from mature markets.
--Editors: Frank Connelly, Dylan Griffiths
To contact the reporter on this story: Elena Logutenkova in Zurich at elogutenkova@bloomberg.net
To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net;
