Jeffrey Vögeli and Elena Logutenkova Zurich
Credit Suisse Group would abandon commodities trading as a $2.6 billion (R27.6bn) fine to settle a US tax investigation pushed the Swiss bank to its biggest quarterly loss since 2008, it said.
The bank’s net loss in the second quarter was Sf700 million (R8bn), compared with a profit of Sf1.05bn a year earlier and a Sf691m estimate from analysts. Zurich-based Credit Suisse posted higher-than-forecast earnings at the investment bank and lower profit in wealth management, even as it attracted more net new money from rich clients than analysts had estimated.
Chief executive Brady Dougan is reporting a second quarterly loss in less than a year as Credit Suisse grapples with regulatory probes.
Analysts and investors have said Credit Suisse should step up efforts to shrink its investment bank and focus on wealth management to boost returns and shore up capital eroded by the US fine.
The bank reaffirmed plans to cut at least Sf4.5bn in annual costs by the end of next year compared with 2011.
“The decision to exit commodities was probably taken mainly in the light of the capital weakness,” Dirk Becker, a Frankfurt-based analyst with Kepler Cheuvreux, said. “The results in the quarter weren’t that bad, with investment banking surprising on the upside. The only really negative development was the drop in wealth management gross margin.”
The settlement in May for helping Americans evade taxes raised questions among investors about Credit Suisse’s financial strength as the ratio of capital to risk-weighted assets for the first quarter fell to the lowest among 16 global investment banks.
The bank wants to boost the ratio to more than 10 percent by the end of the year from 9.5 percent at the end of June.
Credit Suisse shares fell as much as 2.7 percent yesterday.
Global investment banks are pulling back from commodities trading as regulations tighten and revenue slides. Deutsche Bank said in December that it would exit dedicated energy, agriculture, dry bulk and base metals trading. Barclays said in April it would withdraw from most of its commodities activities. JPMorgan Chase agreed to sell its physical commodities unit to Mercuria Energy Group for $3.5bn in March.
Pretax profit at Credit Suisse’s investment bank was steady at Sf752m, beating the Sf544m average estimate of six analysts surveyed. Revenue at the securities unit benefited from a 14 percent increase in fixed income revenue to Sf1.43bn and a 29 percent jump in equity underwriting to Sf268m.
Wealth management posted a 8.4 percent decline in pretax profit to Sf569m, as the gross margin in the business, which measures how much revenue it produces in relation to assets under management, dropped to 99 basis points from 104 basis points in the first quarter.
A basis point is one hundredth of a percentage point.
The unit attracted Sf7.4bn in net new money, more than the Sf6.2bn expected by analysts.
Credit Suisse cited low volatility and client volumes in its decision to exit commodities trading and said the move would cut costs about $75m and lower risk-weighted assets and leverage exposure by $2bn and $5bn, respectively. – Bloomberg