Credit Suisse Ends String of Losses in Trading
Credit Suisse Group AG’s troubled trading business is finally bringing some much needed relief to Chief Executive Officer Tidjane Thiam.
The global markets unit -- a focus of painful cuts and a perennial headache for the CEO -- did better than top Wall Street banks in a period that rival UBS Group AG described as one of the worst in recent history. Wealth management, which Thiam built up to balance volatile trading, benefited from an influx of new money, leaving the advisory unit as the main weak spot of the quarter.
It’s “probably the first time time I smile while talking about” the trading business, Thiam said in an interview with Bloomberg TV’s Francine Lacqua. “There was a lot of pressure at the end of last year to say, you need to restructure global markets again. Our view was no, give them a chance.”
To watch the full 12-minute interview with Thiam, click here.
While a single quarter can’t answer the question how sustainable the notoriously volatile trading results are, the figures give a boost to Thiam as he seeks shareholder approval for a 30 percent pay increase. For two years in a row, the CEO had agreed to cut his bonus amid surprise trading losses and painful job cuts, as he pivoted toward the more stable business of wealth management. Last year, the bank posted its first annual profit in four years.
Credit Suisse rose as much as 4.7 percent in Zurich trading as the bank said it’s “cautiously optimistic,” with client confidence returning and the positive momentum in March continuing into April. The stock was trading 1.6 percent higher as of 1:27 p.m., the biggest gainer among the large European banks.
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The figures give the first detailed indication how European banks have fared at the start of the year. Sergio Ermotti, Thiam’s counterpart at UBS, has warned that the first quarter was “one of the worst” in recent history, pushing revenue at its investment bank down by a third. At Credit Suisse, group revenue declined but profit rose from a year earlier, helped by lower expenses.
Switzerland’s second-largest bank didn’t entirely brush of the difficult environment, with its advisory unit posting a bigger-than-expected loss. Investment banking and capital markets, which helps clients issue stocks and bonds and advises them in merger situations, saw steep drops in those businesses, which the bank attributed to weaker market activity.
And even in securities trading, the bank still suffered revenue declines. But compared to peers, that business held up well, which Credit Suisse in part attributed to a push -- central to Thiam’s strategy -- to sell investment banking products to wealth management clients.
The “results should help quiet skeptics on the bank’s commitment to the trading business,” said Alison Williams, a Bloomberg Intelligence analyst. They “support the bank’s overall strategy with solid flows, especially better-than-expected in Asia and a rebound in trading.”
Revenue from fixed income trading fell 2 percent when reported in U.S. dollars, and equities trading declined 5 percent, according to a company presentation. Almost 60 percent of Credit Suisse’s trading revenue comes from fixed income, which got a boost from leveraged finance and investment grade trading. In equities, sales of structured products bolstered earnings.
At the biggest Wall Street firms, trading fell 14 percent on average in the quarter, driven by a 21 percent slump in equities, as clients remained on the sidelines after a tumultuous end to 2018 and as a U.S. government shutdown at the beginning of the year delayed some transactions.
Thiam over the past years has shrunk the trading unit, winding down areas such as distressed-debt trading after heavy losses early in his tenure. As a result, investment banking and private banking now contribute each roughly 40 percent to group revenue. While that’s down from three years ago, when almost half the bank’s business depended on investment banking, Credit Suisse remains more reliant on the business than UBS, where the securities unit accounted for a little more than a quarter of last year’s top line.
“I actually think there may be upside for us and an ability to take market share,” Thiam said.
To make up for lost revenue, Thiam has expanded wealth management, particularly in Asia, where most of the world’s new millionaires and billionaires are minted. The Asia business contributed 5 billion francs in new assets during the first quarter, driving private banking inflows across the firm.
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