The Business Times

Credit Suisse CFO sees bank's growth slowing capital improvement

Published Thu, Mar 2, 2017 · 10:32 AM

[ZURICH] Credit Suisse Group AG may have a tougher time strengthening its capital position this year as the bank takes on more risk in its push for growth after slashing its stockpile of unwanted assets, chief financial officer David Mathers said.

The bank entered 2017 with a common equity Tier one ratio of 11.6 per cent, up from 11.4 per cent at the start of 2016 - this after a year of surprise losses, costly restructuring and a US$5.3 billion legal settlement.

Improving on that presents a challenge because the better-than-expected result leaves Credit Suisse with fewer assets to offload at a time when some businesses need more capital to backstop growth, Mr Mathers said in an interview in Zurich.

Credit Suisse has said preparations remain on track for selling part of the Swiss business in an initial public offering by the end of the year. While the bank estimates the listing would provide 2 billion francs (S$2.793 billion) to 4 billion francs, last year's capital beat allows it to explore other options to reach a CET1 ratio of above 13 per cent after 2018.

The bigger buffer "gives us flexibility," the CFO said an in interview in Zurich.

Thanks to the progress on capital, "we can decide if and when the IPO can be done".

Mr Mathers, 51, wears two hats at Credit Suisse. Besides overseeing its finances, he's responsible for shrinking its strategic resolution unit, a dumping ground for assets that no longer fit company strategy.

Under pressure from stricter post-crisis rules, chief executive officer Tidjane Thiam has scaled back in investment banking to free up capital for expanding in wealth management.

While other executives spent last year investing in new assets, Mr Mathers had the less glorious task of ditching old ones.

That included finding buyers for complicated investment banking products and risky loans that don't justify the reserves required to cover potential losses.

The bad bank still houses US$44 billion of unwanted risk-weighted assets after releasing US$29 billion last year, exceeding its target by about US$11 billion, Mr Mathers said. Only about half of the remaining risk can be disposed of because the rest is operational in nature.

"The amount of capital Credit Suisse can actually release from the SRU remains important but will be declining as the remaining asset balance reduces," the CFO said.

"Clearly, that is a nice problem to have."

Global markets, the trading unit where surprise losses threw the bank into turmoil a year ago, is close to the lower end of its targeted range for risk. The division may take on more risk this year to benefit from the "buoyant" US market, he said.

Mr Mathers also expects risk to increase in the Swiss business, in international wealth management and in Asian private banking as the bank continues to open its pockets to ultra-rich clients.

Net interest income from lending activity rose 26 per cent in the international wealth management division, 16 per cent in Asia and 8 per cent in Switzerland last year, he said.

Credit Suisse has also committed US$600 million in capital to expand its business in Saudi Arabia, where an application for a full banking license is pending, people familiar with the matter have said.

"Credit Suisse still doesn't have too much capital," said Daniel Regli, an analyst at MainFirst in Zurich who does not yet have a rating on the bank.

"They certainly need to decide wisely where to put it to work."

The SRU unwound 191,000 external derivative trades last year. Assets offloaded include a credit default swap portfolio - insurance contracts that pay out if a borrower defaults - sold to Citigroup Inc. and US$3.1 billion in loans acquired by a UK pension plan.

Analysts at UBS Group AG led by Daniele Brupbacher said last month that a share sale by Credit Suisse itself could be an alternative as the bank's stock has recovered from a record low last July.

The bank would need a "strong and clear justification" to tap shareholders when the feedback is for just the opposite, Mr Mathers said.

People are saying, "you guys can now take your time and you're not under pressure. And I think that's true."



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