CS disappoints while UBS breaks records

CS employees may have cashed in but also caused the group's profits to plunge Keystone

The fourth quarter result at Credit Suisse came as a disappointment on Wednesday after rival UBS had stolen the limelight with record 2005 results.

Credit Suisse shares slumped by as much as seven per cent as its Q4 earnings of SFr1.103 billion ($840 million) were hit by surging costs and problems in investment banking.

The result followed bad news on Monday when Credit Suisse announced a surprise cut of SFr421 million in the quarter’s net profit because of share-based compensation for employees.

“The reason for the disappointment is clearly the higher-than-expected expenses,” commented analyst Javier Lodeiro at Bank Sarasin.

But analysts warned against reading too much into Credit Suisse’s fourth-quarter figures, saying the last three months of the year could simply have been a blip in what was an otherwise successful year.

Good performances

Analyst Andy Penman at Barclays Stockbrokers in London told swissinfo that both Swiss banks had turned in good performances in 2005.

UBS – the country’s largest financial institution – made a record net profit of SFr9.844 billion from its operations, while Credit Suisse reported net income of SFr5.85 billion.

“Both banks did very, very well… There’s very little to choose between Credit Suisse and UBS in the private banking market.

“We did see a little bit of weakness in terms of the margins for Credit Suisse in the fourth quarter but we still saw very close growth in assets under management and also inflows into the private banking areas for both of the banks,” he commented.

Penman feels Credit Suisse had been catching up on its rival in 2005 until the fourth quarter. And he believes that if weaknesses can be corrected, the improved performance relative to UBS can continue this year.

New brand

Credit Suisse launched a new brand and logo in January to reflect its new direction as an integrated global bank. UBS had made a similar move in 2003.

“The move by Credit Suisse is entirely logical… single brand strategies provide the way for customised solutions and a focus on higher quality service and products.”

The single brand application clearly shows that Credit Suisse wants to sell or spin off its insurance arm with which it “merged” in 1997 – Winterthur.

While the business is profitable now, investors are not likely to forget that Credit Suisse had to pump SFr3.7 billion into Winterthur in 2002 to shore up the company’s capital base.

Credit Suisse now says that the unit would be ready for flotation in the second half of the year, adding the timing of any initial public offering (IPO) would be determined by conditions in the equity markets.

No hurry

“It doesn’t need to be sold with any urgency… Investors have been waiting for this spin-off or IPO for a while now and we want that clearer-focused CS business in which the one-brand strategy will help,” Penman said.

However, he thought it would be wise if it were sold sooner rather than later because a divestment would potentially boost CS’s share price.

Penman feels that the “big boys” of banking will want to make further inroads in the private banking and asset management markets, and both UBS and Credit Suisse will also want their slices of the cake.

“I’m not entirely convinced we have the strength and depth of products within CS yet that we have at UBS but there’s the potential there.”

Penman reckons there is still more upside potential for the shares of Credit Suisse but his bank has no intention of selling its holdings in UBS.

“Both Swiss banks are very well positioned for what’s going to be a continuing focus in the wealth management area,” he said.

swissinfo, Robert Brookes

Key facts

UBS 2005

Net profit: SFr9.844 billion (+28%)
Total attributable profit (including sale of four business units): SFr14.029 billion (+75%)
Proposed dividend : SFr3.80


Credit Suisse 2005

Net profit: SFr5.85 billion (+4%)
Proposed dividend: SFr2

In brief

UBS and Credit Suisse – Switzerland’s two largest banks – were formed from a series of mergers and takeovers.

UBS’s performance has been better than that of its rival in recent years, thanks in part to problems at Credit Suisse’s First Boston unit, difficulties with its insurance arm, Winterthur, and management disputes.

Both banks have adopted single brands for all their major businesses – UBS in 2003 and Credit Suisse in January.