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Credit Suisse ends losses in trading; posts Q1 pre-tax profit of 282m francs

Zurich

CREDIT Suisse Group AG's main trading business swung to a profit after two quarters of losses, as Switzerland's second-largest lender emerged relatively unscathed from what rival UBS Group AG called one of the worst environments in recent history.

The bank said it's "cautiously optimistic" as client confidence returns and positive momentum in March continues into April. The main trading unit posted a Q1 pretax profit of 282 million francs (S$377 million), more than the 170 million francs in a company-compiled analyst estimate. The key wealth management unit also topped estimates.

The results relieve one of the last remaining headaches for chief executive officer Tidjane Thiam, whose tenure has been plagued by surprise trading losses. Mr Thiam has pivoted the bank away from volatile investment banking and toward the more stable business of wealth management, which attracted 9.6 billion francs in new money during the quarter. With his three-year turnaround now complete, the CEO is promising more consistent returns and a share buyback of at least 1 billion francs this year.

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The "results should help quiet sceptics on the bank's commitment to the trading business," said Alison Williams, a Bloomberg Intelligence analyst. They "support the bank's overall strategy with solid flows, especially better-than-expected in Asia and a rebound in trading." Credit Suisse rose 2.8 per cent at 9:01 am in Zurich trading, bringing gains this year to 29 per cent.

The figures give the first detailed indication how European banks have fared at the start of the year. Sergio Ermotti, Mr Thiam's counterpart at UBS, has warned that the first quarter was "one of the worst" in recent history, pushing revenue at its investment bank down by a third.

Credit Suisse didn't entirely brush off the difficult environment, with its advisory unit posting a bigger-than-expected loss. But the larger trading business did better than even Wall Street peers, helped by a push to sell investment banking products to wealth management clients.

Trading at the biggest Wall Street firms fell 14 per cent on average in the quarter, driven by a 21 per cent slump in equities, as clients remained on the sidelines after a tumultuous end to 2018 and as a US government shutdown at the beginning of the year delayed some transactions.

At Credit Suisse, revenue from fixed income trading fell 2 per cent when reported in US dollars, and equities trading declined 5 per cent, according to a company presentation. Almost 60 per cent of Credit Suisse's trading revenue comes from fixed income, which got a boost from leveraged finance and investment grade trading.

"There was a lot of pressure at the end of last year to say, you need to restructure global markets again," Mr Thiam said in an interview with Bloomberg TV's Francine Lacqua. "Our view was no, give them a chance."

Mr Thiam over the past years has shrunk the trading unit, winding down areas such as distressed-debt trading after heavy losses early in his tenure. As a result, investment banking and private banking now contribute each roughly 40 per cent to group revenue. While that's down from three years ago, when almost half the bank's business depended on investment banking, Credit Suisse remains more reliant on the business than UBS, where the securities unit accounted for a little more than a quarter of last year's top line.

To make up for lost revenue, Mr Thiam has expanded wealth management, particularly in Asia, where most of the world's new millionaires and billionaires are minted. The Asia business contributed 5 billion francs in new assets during the first quarter, driving private banking inflows across the firm. BLOOMBERG