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Credit Suisse gives investors reason to stay on revenue gain

Thiam defends the trading business, saying the unit doesn’t chase standalone revenue, but instead aims to serve clients’ needs (Pic: Bloomberg)

The firm has slashed expenses and cut thousands of jobs, with Thiam saying it will return cash to shareholders once the turnaround is complete

Zurich • Credit Suisse Group AG CEO Tidjane Thiam (picture) is giving investors more reason to stay through the final leg of his restructuring.

Gains in private banking compensated for trading weakness in the second quarter, the Zurich-based bank reported yesterday, as Thiam completes his pivot to the business of serving the rich.

Wealthy clients added about nine billion francs (RM36.95 billion) of fresh cash in the quarter, compared to net outflows at rival UBS Group AG, helping the key international wealth management unit and the Swiss Universal Bank post higher than expected earnings.

The results underscore how far Thiam’s three-year turnaround plan has progressed, after the bank tapped investors for more than 10 billion francs of capital, pared back trading in New York and London, and focused on managing money for the wealthy. The firm has slashed expenses and cut thousands of jobs, with Thiam saying Credit Suisse will return cash to shareholders once the turnaround is complete.

“The quality of the earnings is high,” Kian Abouhossein, an analyst at JPMorgan Chase & Co, said in a note to clients. “Results are better than expected in all divisions except global markets,” the main trading business.

Credit Suisse rose 1.2% at 10:58am in Zurich trading yesterday, paring declines this year to 8.2%.

Net revenue of 5.6 billion francs beat estimates, with the Swiss Universal bank doing better than expected on revenue and adjusted pretax profit. The international wealth management business also beat, posting profit of 461 million francs. Profitability didn’t meet esti- mates at the global markets business, which has been a continued drag on the bank’s performance, though the performance at the investment bank rebounded.

Thiam defended the trading business in a Bloomberg Television (TV) interview, saying the unit doesn’t chase standalone revenue, but instead aims to serve clients’ needs.

The “strategy is not to maximise standalone revenue” in the global markets business, he told Bloomberg TV’s Francine Lacqua. “We have taken a different path, which is to use global markets to serve our clients.”

The business, led by Brian Chin, has steadily become less important since the overhaul started as Thiam sought to lower the bank’s reliance on volatile-trading activities. The bank exited distressed-debt trading after heavy losses at the end of 2015 and beginning of 2016, and has also slashed other areas such as trading of securitised products in Europe, while downsizing foreign exchange and macro trading. Still, in revenue terms, the business is bigger than international wealth management.

Thiam, a former insurance executive, is betting on rising emerging-market affluence to help drive earnings in regions such as Asia and Latin America. The CEO is boosting collaboration between the firm’s wealth units and pared down trading businesses. He’s also putting deal-makers alongside private bankers in client meetings with the aim of devising financing ideas for their companies, as well as topics such as their personal wealth and succession plans.

Swiss rival Julius Baer Group AG posted a net new money growth rate of 5.1% in the first half and had disappointed investors due to lower recurring revenues and low growth in assets under management, while UBS Group AG saw outflows because of US tax season. Investors in wealth managers want to see steady growth in revenues not driven by volatile transactions.

Other highlights of the earnings release included:

Net income more than doubles to 647 million francs. Net revenue was about 7% higher. Global markets revenue declined about 6%. International wealth management added 5.2 billion francs of assets. — Bloomberg