Credit Suisse Benefits From Complex Deals Boosting Stock Trading

(Bloomberg) -- Credit Suisse Group AG, the Swiss lender trying to rebuild its stock-trading business, is benefiting from large, complex derivatives deals -- one-off trades that can lose banks money when bets backfire.

Switzerland’s second-largest lender struck "landmark" deals in the first quarter that offset declines in more straightforward equity trading businesses, the company said on Wednesday. Total revenue from stock dealing at climbed 1.5 percent from a year earlier to 733 million Swiss francs ($745 million), a fraction of the 33 percent average gain reported by the five biggest U.S. banks.

“You have to really design very customized bespoke products” for clients who want both “some downside protection and also some upside,” Chief Executive Officer Tidjane Thiam said on Bloomberg TV. “It seems obvious, but it’s something we haven’t done in the past and that we’re now doing to great benefit.”

Thiam created a unit last year that brings together Credit Suisse’s private bankers, focused on rich individuals, with its traders, who usually deal with hedge funds and asset managers. Credit Suisse signaled it may struggle to reach a goal of at least $6 billion of revenue this year at the global markets unit, which includes trading operations for the Americas and Europe.

Revenue Target

Led by Brian Chin, the division brought in $1.64 billion in adjusted revenue during the first three months, which are traditionally when traders generate the biggest chunk of their annual earnings. That leaves the bank with a shortfall on the way to the full-year goal, Thiam said, though he’s not giving up on the target.

“The six is something we believe we can achieve with all the upsides we’ve talked about in equities, where there’s been a turnaround,” he said. “I’m looking at Brian here. He is nodding. The pressure is on him, it’s on his team. That’s how you get somewhere.”

Credit Suisse has been investing in talent “specifically within our equities business, where we saw an opportunity to refresh our franchise in equity derivatives, but also across our franchises, to retain, motivate and grow our teams,” he said.

Equity derivatives are contracts that derive their value from underlying shares. While some are traded on exchanges, others are more opaque and tailored specifically for wealthy individuals and corporations, who use the products to fund acquisitions and protect their investments.

Credit Suisse declined to take part in one complex trade in 2016, a so-called margin loan of 1.25 billion euros ($1.5 billion) made by a group of banks to Christo Wiese, then the chairman of Steinhoff International Holdings NV, that was secured against his shares in the company. The deal soured when the retailer’s shares lost most of their value in two days in December, triggering more than $1 billion of losses for firms including Bank of America Corp. and Citigroup Inc.

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