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Credit Suisse gives investors reason to stay on revenue gain

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Mr Thiam's turnaround plan has seen Credit Suisse tap investors for more than 10 billion francs of capital, pare back trading, and focus on managing money for the wealthy.

Zurich

CREDIT Suisse Group AG chief executive officer Tidjane Thiam gave investors reason to stay with the bank through its restructuring after gains in private banking and the Swiss unit compensated for trading weakness.

The bank's key international wealth management unit and the Swiss Universal Bank - which contains Credit Suisse's local investment banking and wealth management clients - posted higher than expected earnings. The bank added about nine billion francs (S$12 billion) of net new money in the three months till June, compared to net outflows at rival UBS Group AG.

Mr Thiam's three-year turnaround plan has seen the bank tap investors for more than 10 billion francs of capital, pare back trading in New York and London and focus on managing money for the wealthy. The firm has slashed expenses and cut thousands of jobs, with Mr Thiam saying that Credit Suisse will return cash to shareholders once the turnaround is complete.

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The stock gained in early trading in Zurich, rising 2.3 per cent to 16.15 francs as at 9.04 am local time, after earlier gaining as much as 2.5 per cent.

"The quality of the earnings is high in our view, driven by ongoing outperformance in the wealth management business with global markets the weak spot," 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."

While analysts and observers have turned more optimistic on Credit Suisse since talking up investor returns at last year's investor day, the share price has slumped. The bank's shares have lost approximately a fifth of their value in the last four years, reflecting weak trading results, the need to tap shareholders for funding, a hefty fine to the US department of justice for selling faulty mortgage securities and tax write-downs.

Credit Suisse net revenue of 5.6 billion francs beat estimates, with the Swiss Universal bank doing better-than-expected on revenue and adjusted pre-tax profit. The international wealth management business also beat estimates, posting profit of 461 million francs. Profitability did not meet estimates at the global markets business, which has been a continued drag on the bank's performance, though the performance at the investment bank rebounded.

Mr Thiam defended the trading business in a Bloomberg Television interview, saying that the strategy of the business is not to chase standalone revenue and to use the business to serve clients.

Credit Suisse's global markets business, led by Brian Chin, has steadily become less important since the overhaul started as Mr 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.

Mr Thiam, a former insurance executive, is betting on rising emerging market affluence to help drive earnings in regions such as Asia and Latin America. He is boosting collaboration between the firm's wealth units and pared down trading businesses. He is 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 posted a net new money growth rate of 5.1 per cent 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 doubled to 647 million francs; net revenue was about 7 per cent higher; global markets revenue declined about 6 per cent; international wealth management added 5.2 billion francs of assets. BLOOMBERG