A Muted Future for Credit Suisse
Credit Suisse’s future is more workmanlike than its racy third quarter may suggest.
The Swiss group revealed on Thursday that its investment bank had trumped Wall Street. Fixed-income trading revenue leaped by a half over the same period a year ago, against its American peers’ average increase in the mid-teens. But questions linger over Credit Suisse’s ability to maintain that performance if rates rise.
Credit Suisse’s quarter was a mixed bag. Its traditionally strong securitization arm and emerging markets drove the third-quarter rise in the investment bank’s top line. A 13 percent group return on equity is better than most peers. But wealth management revenue was flat from the same quarter last year, with net margins falling to just 25 basis points.
A global shift from offshore to onshore private banking is hurting. A single client pulled 1.1 billion Swiss francs from its Swiss-based business in the quarter. Its crosstown rival, UBS, has gained far more in overall assets since the pair hit crisis lows.
On the plus side, wealth management should pick up when rates do. A 1 percent parallel rate rise across developed markets would result in an additional 500 million Swiss francs in quarterly revenue at Credit Suisse, according to a person familiar with the situation. Less positively, tighter monetary policy typically spurs trading in interest-rate and foreign-exchange products, where Credit Suisse has cut back. In bond trading, Credit Suisse doesn’t even make the top seven players.
As one of the few big investment banks not to be bailed out in the crisis, Credit Suisse could have been a market leader now. But in revenue terms, it’s a top three player only in equities, where it has been losing market share to the fourth-place JPMorgan. And the bank aims to cut leverage in the business further, which may also suppress returns.
It’s fine to focus on business areas where you can make a good return. And like UBS, Credit Suisse has rightly downsized its ambitions to be a bulge-bracket universal bank. But Credit Suisse trades on a forward 12-month earnings multiple of nine times, versus 12 for UBS. Investors are saying UBS can manage the transition better.
Credit Suisse Quarterly Profit More Than Doubles
By CHAD BRAY
The bank posted a $1.08 billion profit, benefiting from stronger equity underwriting, fixed-income sales and trading in its investment bank.
