Credit Suisse seen posting trading losses, lower capital buffer

by BLOOMBERG

ZURICHIn his first two years running Credit Suisse Group AG, Tidjane Thiam has been putting out res. Today, there’s still smoke.

The Swiss lender is expected to report a third straight annual loss, mainly due to a 2.3 billion-franc (RM9.65 billion) writedown related to a change in US tax policy at the end of last year. Even without that hit, the company’s earnings are likely to show that there’s still work to be done.

Analysts and investors will scrutinise Credit Suisse’s report today for evidence that Thiam’s restructuring plan is continuing to deliver rising revenues, lower costs and better risk-management at the bank’s trading units.

They will also see whether he’s gathering fresh assets that will boost revenue at the wealth-management businesses.

At the bank’s investor day in November, the CEO promised to return more cash starting in 2019 and said it may beat its cost-savings target, which convinced most investors to stick with Credit Suisse. The stock has risen 16% over the last 12 months, beating the Bloomberg European 500 Banks index.

Here are five things to watch out for:

Possible Capital Dent

The bank reminded analysts in recent weeks that it intends to beef up the assets it must hold against operational risks, according to people with knowledge of the discussions.

Credit Suisse has said it would increase risk-weighted assets by 3.8 billion francs in the final quarter (4Q) of 2017 to account for legal risks.

The investment bank, led by Jim Amine, may also see capital rise relative to assets because it has to fund a pipeline of securities issues that may come through in the 1Q, Thiam indicated in an interview at the World Economic Forum in Davos last month.

Overall, the most-watched capital ratio may come in at 12.9%, according to a consensus compiled by the company, which would be lower than the 13.2% in the first nine months of 2017.

Revenue

Thiam is trying to increase revenue even as he lowers costs. Credit Suisse may see a slight rise for the year despite a decline in the 4Q, according to analyst estimates. While the market-dependent businesses may weigh on the top line due to a lack of volatility, quarterly revenue in the wealth businesses is expected to climb.

Tax Headaches

Credit Suisse estimated in December that it could face a 2.3 billion-franc writedown related to tax deferred assets. While this won’t affect the bank’s regulatory capital, it will be enough to push the lender to another full-year loss.

Wealth Management

Credit Suisse is expected to report net new money growth for both the 4Q and the full year.

The bank may see some outflows as wealthy clients repatriate money following personal tax amnesties and hidden asset-disclosure programmes in the US, Europe and other regions. Some of that cash currently rests with Credit Suisse’s International Wealth Management business, led by Iqbal Khan, and at its Asia-Pacific (APAC) private bank.

Credit Suisse has reported more than 40 billion francs in outflows since 2011 as clients moved to become tax compliant, the bank has said.

Trading Losses

Credit Suisse’s APAC markets and Global Markets businesses are expected to post a combined adjusted pretax loss of roughly 100 million francs. APAC remains one of Thiam’s last headaches and it is set to post its third quarterly loss during 2017.

Global Markets was in focus last week when one of its products that bet on low volatility had to be liquidated after stock markets seesawed. The closure didn’t cause any losses, the bank said.

Investors will seek some evidence that the equity business is improving. Overall, Global Markets targets 10% to 15% adjusted return on regulatory capital for this year. That compares to 6.9% after the first nine months of 2017. — Bloomberg