Credit Suisse Trading Unit Disappoints in Setback for Thiam

(Bloomberg) -- Credit Suisse Group AG’s turnaround is entering its final phase, but there’s one headache that Chief Executive Officer Tidjane Thiam can’t seem to shake off: the Global Markets unit.

The key trading unit -- whose struggles have been one of the most difficult challenges in Thiam’s three-year tenure -- posted an unexpected loss in the third quarter, forcing the bank to abandon its $6 billion revenue target this year for the business. The result added to investor disappointment over missed revenue and net income.

Thiam has promised to return half the bank’s profit, mainly through buybacks or special dividends, once the lender strengthens capital generation from next year. Scaling down Global Markets -- once one of the strongest trading units on Wall Street -- and restoring profitability has been a key project of Thiam’s. The loss is likely to add to fresh questions about future strategy for the unit.

‘Uninspiring’

“Credit Suisse results are uninspiring, worse compared to peers,” Vontobel analyst Andreas Venditti wrote in a note to investors. “Global Markets disappoints again and keeps underperforming its peers.”

The shares dropped as much as 4.7 percent in Zurich and traded 1.6 percent lower at 13.02 francs as of 2:30 p.m. local time and are down by about a quarter this year.

Since Thiam joined from insurer Prudential Plc, he’s exited multiple business lines in global markets, from distressed-debt trading to securitized product trading in Europe. He’s not giving up on the unit, though. The bank plans to invest about 250 million francs in the business after reducing some funding costs, Thiam said in an interview with Bloomberg Television, while acknowledging some targets had been too ambitious.

Thiam Grilled

“Let’s talk about the future of global markets,” Thiam said in a call with analysts who grilled the executive over the unit’s performance. “We expect that revenues will benefit from the investments we have made in equities,” he said.

Credit Suisse has focused on boosting the wealth management business and dealing with legacy issues, including a settlement with the Department of Justice over the sale of faulty securities, and the buyback of expensive capital instruments from key shareholders. Thiam, though, still needs to reassure investors on how the bank will boost growth.

There was some good news: the bank’s CET1 ratio -- a key measure of financial strength -- increased about 10 basis points from the end of the second quarter, while the bank continues to attract inflows at a healthy clip in its wealth management and asset management businesses, adding about 14.8 billion francs of new assets in total. The bank also said it expects to meet a target cost base of less than 17 billion francs by the end of the year.

Refocusing Bank

Credit Suisse is freeing up funds for investment after buying back about 5.9 billion francs ($6 billion) of debt issued after the financial crisis to cut funding costs. Thiam is refocusing the bank as new regulations after the financial crisis -- including higher capital requirements -- forced it to abandon the investment bank-led strategy.

Thiam’s bet on managing money for the very wealthy is focused on emerging markets and entrepreneurs. Credit Suisse set a regional structure for the private-banking businesses and regionalized further this year to be closer to clients in the regions and seek to give more authority to local management teams. A further bright spot was the bank’s Asia division.

Net new money from Asian private banking clients of 6.4 billion francs increased 12.5 percent at an annualized rate - one sign Thiam’s move to target the region’s wealthy is paying off. That was faster than UBS, Asia’s biggest wealth manager, which has almost double the number of relationship managers in the region.

International Wealth Management -- which saw profit rise by 50 percent between 2015 and 2017 -- posted a growth rate of 3.2 percent in net new money for the quarter while profits were in line with expectations.

Other highlights from the earnings:

  • Net income of 424 million francs vs 478.5 million-franc estimate
  • Revenue of 4.89 billion francs vs 5.05 billion-franc estimate
  • 10.3 billion francs of new assets added to wealth management 
  • International wealth management assets of 785 billion francs
  • Swiss Universal Bank posts 1.66 billion francs of adjusted pretax profit for the first nine months of the year; the bank targets 2.3 billion francs for 2018 

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