Credit Suisse results hit by cutting risk

Credit Suisse CEO Dougan says the figures are disappointing Keystone

Credit Suisse recorded a “disappointing” net loss of SFr637 million ($700 million) in the last quarter of 2011, partly as a result of ditching risky business lines.

Chief executive Brady Dougan blamed “adverse market conditions”, but also admitted that the accelerated exit of certain investment banking operations cost the group nearly SFr1 billion.

Credit Suisse surprised observers by revealing on Thursday that it had managed to cut $35 billion (SFr32 billion) of risky assets from its investment banking division in the last three months of 2011.

The bank said it was now well ahead of its original schedule to cut risk in order to meet new regulatory requirements.

In November the bank said it would reduce the volume of risky assets to $229 billion by the end of 2012. It now stands to exceed this target by April and now plans to further reduce the pot to $190 billion (SFr174 billion) by the end of the year.

Clearer field

Dougan said the decision to speed up the process partly resulted from expectations that selling such assets would become harder and more expensive later this year as rival banks also joined in the exercise.

“If we do it [selling risky assets] up front then we will have a clearer field that makes it more cost effective,” Dougan said. As more banks add their risky assets to the market nearer to regulatory deadlines, buyers would be able to demand better deals at the expense of sellers.

Credit Suisse’s first fourth quarter loss since 2008 was also hit by a massive 64 per cent reduction in investment banking revenues as the division completely got out of some forms of trading.

The bank is also engaged in cutting jobs, an exercise which should see a three per cent decrease in the number of staff by then end of 2013.

The bank’s profit for the year as a whole was SFr1.95 billion, in comparison with SFr5.1 billion in 2010. Net income distributable to shareholders for 2011 was down by 62 per cent. In April the bank will propose a dividend of 75 centimes per share, down from SFr1.30.

The results are far below what analysts had predicted. For the fourth quarter they had expected a loss of SFr 431 million.

Nothing to fear

One piece of good news was the influx of SFr4 billion of net new assets from wealthy clients in the last three months of last year, a result that beat the SFr3.1 billion posted by rival UBS on Tuesday.

In common with UBS, most of Credit Suisse’s new assets came from emerging markets or from the ultra-rich clients that both banks are targeting with renewed focus.

Unlike UBS, Credit Suisse is still under the spotlight of the United States authorities that are investigating allegations of tax evasion.

Credit Suisse revealed that it had put aside SFr295 million in the third quarter of last year to cover legal costs associated with the probe. The bank has also handed over client data to the Swiss government ahead of a likely transfer to the US.

But Dougan insisted that his bank has nothing to fear from US tax investigators following the recent collapse of the Swiss private bank Wegelin under the weight of US criminal proceedings.

“We had a policy not to take any accounts from UBS,” said Dougan in reference to claims that Wegelin and other Swiss banks poached UBS clients when the large bank fell foul of the US tax evasion probe.

On Tuesday, UBS reported a 76 per cent fall in fourth quarter profits to SFr393 million and a SFr3.3 billion drop in annual profits to SFr4.2 billion.

Problems of Switzerland’s big banks

Switzerland’s two big “universal” banks were both savaged by the financial crisis that started in 2008.
 
Credit Suisse got its fingers burned, but avoided the worst by spotting the warning signs earlier than its rival.
 
UBS, on the other hand, became Europe’s worst hit bank, writing down more than $50 billion in losses. The group had to be bailed out by the government and the Swiss National Bank in 2008.
 
The fiasco led many Swiss politicians, the media and public to attack the banks’ plan of expanding investment banking operations in the build up to the crisis. Many observers have voiced concerns that traditional Swiss wealth management activities had been smothered by a new breed of aggressive Anglo-Saxon banking.

The government has demanded that UBS and Credit Suisse should hold enough capital to prevent them a failure that would drag down the economy.

It wants to impose much tougher rules than the international standards.

The banks are concerned that if these rules are not extended to banks world-wide, they will become less competitive.