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Credit Suisse profit challenge in focus after UBS wealth slump

Wednesday, February 3, 2016 - 07:36
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[ZURICH] Credit Suisse Group AG's shareholders are seeing from rival UBS Group AG that pursuing a steadier business model may not result in stable profit.

[ZURICH] Credit Suisse Group AG's shareholders are seeing from rival UBS Group AG that pursuing a steadier business model may not result in stable profit.

Credit Suisse on Thursday reports its first quarterly results since an October overhaul in which Chief Executive Officer Tidjane Thiam adopted a similar model to UBS: shrinking the trading unit and increasing the focus on wealth management, particularly in Asia.

A slump in earnings at UBS's wealth- management and investment-banking divisions Tuesday sparked its biggest stock drop in more than a year and sent Credit Suisse's shares down 3.7 per cent.

Credit Suisse is set to post a net loss of 4.3 billion francs (S$6 billion) in the fourth quarter, sparking the first full-year loss since 2008, as it writes down a substantial part of the 6.3 billion francs of goodwill at its investment bank. Analysts estimate a decline in pretax profit at every one of the bank's units in the first three months under the new structure.

UBS's results included net outflows of 3.4 billion francs from clients in its wealth management unit, the bank's biggest division.

Much of those outflows came from entrepreneurs in emerging markets, the same type of clients that Credit Suisse wants to target under its new strategy.

At the Swiss universal bank, which is earmarked for an initial public offering by the end of 2017, profit may drop after a one-time gain tied to the sale of real estate in 2014. The Asia Pacific business - targeted to more than double pretax profit by 2018 - was probably hit by cooling emerging markets, led by China.

Mr Thiam, who took over from Brady Dougan in June, has yet to convince investors that his new approach will translate into higher profitability. While UBS shares have jumped about 18 per cent since that bank announced an overhaul in late 2012, Credit Suisse is down 16 per cent over the same period. Its shares have also lagged the bigger bank since Mr Thiam presented his strategy, which included raising about 6 billion francs in a share sale.

BLOOMBERG