Credit Suisse Rallies as Thiam Rides Return of Volatility

(Bloomberg) -- Credit Suisse Group AG’s trading revenue rebounded at the start of the year along with market volatility, in what Chief Executive Officer Tidjane Thiam said was evidence that the investment bank was alive and well after two years of cost reductions.

The first six weeks of 2018 showed a “strong start” in the market-dependent businesses, with revenue gains of 10 percent in its global markets unit and 15 percent in Asia-Pacific markets, Credit Suisse said Wednesday, sending the shares up by the most in more than two months. Thiam said he “couldn’t be more pleased” with that performance because it showed the last piece of his turnaround plan is in place.

“The most pleasing thing for me has been to see that our franchise is intact and actually vibrant,” Thiam said in an interview with Francine Lacqua on Bloomberg Television. “That was the last challenge in the restructuring, because wealth management is going well. It was all about global markets and Asia markets.”

Thiam is in the final year of his three-year turnaround plan, which has reduced reliance on riskier debt trading in favor of wealth management and more client-focused investment banking. While the tax reform in the U.S. and a lack of volatility in the fourth quarter hurt results in the final months of last year, and caused the bank to post its third consecutive annual loss, the CEO said the fact that the trading business is picking up now that volatility is back shows his surgery was successful.

Credit Suisse rose as much as 4.2 percent and traded 3.4 percent up at 1:38 p.m. in Zurich, leading the Bloomberg Europe 500 Banks and Financial Services Index higher. The Swiss bank is among the best performers in the index over the past six months, with a gain of more than 16 percent.

‘Strong Outlook’

“The decisive point in our view is the very strong outlook statement” about the start of this year, said Andreas Brun, an analyst at Mirabaud in Zurich with a hold recommendation on the stock.

While the market swings of the past week have unnerved investors, they’re generally good news for investment banks because clients transact more. Laurent Mignon, the CEO of France’s Natixis SA, said in an interview Wednesday that his bank has seen “good activity” since the start of the year.

That’s a welcome change from the fourth quarter, when revenue from fixed-income trading fell 4.7 percent at Credit Suisse, while equities trading slumped 22 percent. The main trading unit, a division called global markets that’s run by Brian Chin, posted a bigger loss before tax than analysts had estimated. Thiam said that there will be further cost cuts in the business this year but that the main target would be to increase productivity.

Overall, fourth-quarter revenue of 5.19 billion francs ($5.56 billion) at the bank beat the 5.04 billion franc estimate of eight analysts polled by Bloomberg. Credit Suisse reported a net loss for the fourth quarter of 2.13 billion francs because of changes to the U.S. tax code.

Advisory Business

To be sure, this isn’t the first time that Thiam has been optimistic about the prospects of Credit Suisse’s trading units. A year ago, the CEO said “you can see the momentum” in the markets businesses” and predicted a “very strong in the first quarter, barring unforeseeable events.” Yet many of Credit Suisse’s markets businesses went on to struggle throughout 2017 as volatility declined.

Thiam on Wednesday cautioned that the violent swings of the past weeks had a negative impact on the advisory business, because clients prefer calmer market to issue stocks or bonds.

Other highlights from Credit Suisse’s fourth-quarter earnings report:

• Swiss Universal Bank full-year adjusted pretax profit 1.9 billion francs
• Net new assets for wealth management 4Q 2017 of 4 billion francs compared to outflows of 0.7 billion francs in 4Q 2016
• Common equity tier 1 ratio 12.8 percent vs analyst estimate of 12.9 percent
• Adjusted operating cost base of 17.7 billion francs at actual FX rates
• Proposes to pay a dividend of 0.25 francs per share for 2017

--With assistance from Donal Griffin Francine Lacqua and Jan Dahinten

To contact the reporters on this story: Jan-Henrik Förster in Zurich at jforster20@bloomberg.net, Patrick Winters in Zurich at pwinters3@bloomberg.net.

To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net, Christian Baumgaertel, Ross Larsen

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