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Credit Suisse CEO seeks further cost cuts at global markets

Wednesday, September 28, 2016 - 07:26
37971049 - 05_04_2016 - HK CREDIT SUISSE.jpg
Credit Suisse Group AG is seeking ways to further reduce costs at the trading unit already targeted for deeper cuts after it blindsided chief executive officer Tidjane Thiam with losses this year.

[ZURICH] Credit Suisse Group AG is seeking ways to further reduce costs at the trading unit already targeted for deeper cuts after it blindsided chief executive officer Tidjane Thiam with losses this year.

"We're now working under the new leadership of Brian Chin to identify further structural cost savings" in the global markets unit, Mr Thiam said at a conference in London on Tuesday.

"This will involve further reduction of duplication, streamlining of our operating platform and better use of technology." Mr Thiam, 54, accelerated cuts at the unit in March after it racked up about US$1 billion in unexpected writedowns on trading positions.

With regulators toughening scrutiny of riskier activities, the CEO is seeking to boost profitability by focusing on Asia-led wealth management. Global markets, housing securities trading, will probably post a third-quarter profit, the CEO said.

"I'm not surprised that they're cutting back," said Chirantan Barua, an analyst at Sanford C Bernstein with an underperform rating on the shares. "Securities units will be a permanent restructuring fixture among European banks. It's not a good environment to deleverage - it's a tough market."

The shares fell 3 per cent to 12.42 Swiss francs at 4:53pm in Zurich, making it the third-worst performer on the 38-member Bloomberg Europe Banks and Financial Services Index, which slipped 0.7 per cent.

Europe's largest lenders have been under pressure to restructure their trading units as volatile markets erode revenue. At Deutsche Bank AG, CEO John Cryan has eliminated jobs, suspended dividend payments and cut risky assets, while Barclays Plc CEO Jes Staley has pledged to focus on more profitable parts of the business such as consumer banking.

Mr Chin was promoted to replace Timothy O'Hara as head of global markets, the company's largest division, earlier this month. The global markets unit posted a pretax profit of 154 million francs (S$216 million) in the second quarter after a loss in the previous three months. Mr Thiam signalled on Tuesday that he's confident the business will be able to beat a 2016 target of lowering operating costs by 6 billion francs.

The CEO said he's "pleased" with the performance of the investment banking and capital markets division, led by Jim Amine.

"Given the more lumpy nature of mergers and acquisitions fees, of course, the third quarter will see some timing disparity between these announced transactions and revenue recognition," he said.

"And I don't want to read too much into quarterly results in an activity that is notoriously volatile." The CEO also said that the bank suffered outflows in Switzerland in the third quarter as it exits partnerships with some asset managers.

"We are going through our relationships with the external asset managers and, let's say, pruning them to make sure that we only keep the desirable ones," he said. "Our ambition is to be a wealth manager for very successful wealthy people, to be in Switzerland as a safe haven, but not to offer opacity."

Since taking over in July 2015, Mr Thiam has been seeking to reverse a slide in the shares that has erased about 43 per cent of the bank's market value this year. The bank is "on track" to meet a target of reducing net costs by 1.4 billion francs in 2016, with Mr Thiam saying he's confident of Credit Suisse achieving another 1,200 job cuts to meet its full-year goal.

In Switzerland, the bank is spending "very material amounts" to set up a legally independent unit, Mr Thiam said, asking investors to keep that in mind when they look at those results.

Credit Suisse plans to sell part of the domestic business in an initial public offering as soon as next year.

Credit Suisse had a common equity Tier 1 ratio, a measure of financial strength, of 11.8 per cent at the end of June. While that was at the high end of the bank's 11 per cent to 12 per cent target this year, Mr Thiam said he prefers prudence, noting the guidance doesn't factor in litigation.

Credit Suisse is among European banks under investigation in the US over allegations they sold fraudulent mortgage-backed securities ahead of the 2008 financial crisis.

The Justice Department is asking Deutsche Bank to pay US$14 billion to settle its probe, prompting speculation that the German lender might have to raise capital.

Credit Suisse had the 1.76 billion francs in reserves for litigation at the end of June after tapping shareholders for 6 billion francs in late 2015 to fund the restructuring.

The Zurich-based bank is scheduled to release third-quarter earnings on Nov 3, followed by an investor day on Dec 7.

BLOOMBERG