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Credit Suisse CEO Cautions on Outlook After Trading Beat

Credit Suisse Results Bring Relief to Thiam After Spying Scandal

(Bloomberg) -- Credit Suisse Group AG gave a more downbeat outlook after trading income surged, saying the U.S.-China trade dispute will lead to more cautious spending and investment decisions.

The Zurich-based bank also highlighted Brexit as an ongoing geopolitical challenge likely to affect client sentiment this year. It struck a cautious note after third quarter results that beat analysts estimates for both revenue and net income, led by gains at its global markets business -- once a perennial source of concern for Chief Executive Officer Tidjane Thiam.

Credit Suisse CEO Cautions on Outlook After Trading Beat

Thiam is grappling with the market challenges while seeking to move beyond one of the bank’s biggest scandals of recent years after the botched surveillance of a former executive sparked probes by Swiss prosecutors. Chief Operating Officer Pierre-Olivier Bouee, the CEO’s chief lieutenant at three companies, stepped down this month after ordering detectives to shadow former wealth-management head Iqbal Khan to ensure he didn’t poach clients and brokers for his new team at UBS Group AG.

“Shareholders have been very much backing the company and its leadership,” Thiam said in an interview with Francine Lacqua on Bloomberg TV. “The action taken was inappropriate, no question about that, and disproportionate,” he said of the spying operation, his first public comments since the scandal broke. Thiam said he did not order the action and it hasn’t had a discernible impact on the business.

Chairman Urs Rohner said that Thiam retains his personal backing and that of the board after the spying affair. The matter had escalated after a personal dispute between Thiam and Khan, with media reports saying the two men had fallen out over Khan’s ambition and personal insults at a party earlier this year.

Credit Suisse shares declined as much as 3.1 percent, the most in more than a month, and traded 2.8% lower as of 10:33 a.m. in Zurich. Citigroup analysts Andrew Coombs and Nicholas Herman said the results were “mixed” in a note to clients, while KBW analyst Thomas Hallett said that questions remain on the underperforming capital markets unit and Asia trading.

Global Markets

The global markets trading unit, a source of surprise losses in recent years, saw revenue soar and pretax profit rise to 269 million francs ($270 million), almost double what analysts were expecting. The gains were driven by a 63% increase in fixed income trading, while equity trading rose three percent, beating the average gain at U.S. peers. Investment banking & capital markets business swung to a second quarterly loss this year and the Asian trading business also reported a loss.

Inflows at wealth management of 5.6 billion francs missed analyst estimates for almost 7 billion francs, though pre-tax profit of 539 million francs at the international wealth management unit was better than expected. Philipp Wehle, who replaced Khan as head of that business, plans to boost number of private bankers that serve its richest clients.

As part of the emphasis on private banking, Credit Suisse is considering a return to U.S. wealth management after a four-year absence, people familiar with the matter said earlier this month. Talks have focused on adding $15 billion of assets under management at a new base in Miami, mostly catering to wealthy Latin Americans, the people said.

While Thiam has held off on job cuts like those announced by Deutsche Bank AG and Societe Generale SA, an industry-wide slump in trading and initial public offerings and the prospect of low interest rates for longer may test his resilience. The bank plans to impose charges on more wealthy clients to spread the pain of negative interest rates and expects to start charging for Swiss franc deposits after imposing a 0.4% fee on euro accounts of more than 1 million euros ($1.1 million), according to a person with knowledge of the matter.

Face Time

Thiam has also been devoting more face time to top private bankers in recent months and holding talks on boosting pay as he seeks to prevent defections after Khan’s exit, according to people familiar with the matter. The CEO has been reaching out to the best revenue generators at the international wealth business to discuss compensation and career prospects, paying particular attention to emerging markets such as Brazil, the Middle East and emerging Europe, the people said.

The earnings add to momentum last quarter after the bank had brushed off the gloom in European banking as wealthy clients added new money and revenue from securities trading rose in a quarter in which peers posted declines. Thiam emerged from a painful three-year turnaround six months ago.

Key results from Credit Suisse’s third quarter:
  • Net income 881 million francs vs company-compiled estimate 751 million francs
  • Net revenues rose 9% to 5.3 billion francs
  • APAC Markets loss before taxes of 34 million francs
  • CET1 ratio 12.4%, company-compiled estimate 12.5%

To contact the reporters on this story: Patrick Winters in Zurich at pwinters3@bloomberg.net;Marion Halftermeyer in Zurich at mhalftermeye@bloomberg.net

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

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