Investment banking lifts Credit Suisse profits

Credit Suisse beat analysts’ expectations by reporting net profits of SFr1.3bn ($1.4bn) in the first quarter, as its investment banking arm enjoyed a profitable performance.

The result is a sharp improvement on the first quarter of 2012, when the Swiss bank reported profits of just SFr44m, after taking a SFr1.55bn charge relating to swings in the value of its own debt. Analysts had expected net profits of SFr1.25bn.

Brady Dougan, chief executive, said the results – which also saw net revenues increase from SFr5.9bn to SFr7.1bn – showed the strategic decisions that Credit Suisse had taken since 2011 were beginning to bear fruit.

“In an industry that still faces substantial restructuring, we have effectively completed the transformation to the new regime and have made material progress in establishing a business model that is stable, high-returning and ready for the new regulatory environment,” he said.

Unlike its domestic rival UBS, which is radically scaling back its investment bank, Credit Suisse has insisted it remains committed to a full-service investment bank, although it has sharpened the division’s focus. Almost 60 per cent of the division’s capital is now deployed in areas, such as credit and securitised products, where it is among the top three operators.

This stance proved profitable in the first quarter, as the investment banking unit’s pre-tax profits climbed to SFr1.3bn, up 43 per cent on a year earlier.

However, the increase was due not so much to a surge in revenues, which remained flat, as to a fall in costs, as the 2012 figures included a SFr411m payout under Credit Suisse’s award scheme that was not repeated this year.

By contrast, pre-tax profits at Credit Suisse’s private bank fell to SFr881m, down from SFr951m a year earlier – mainly because of lower revenues after the disposal of its stake in Aberdeen Asset Management, and lower net interest income.

Credit Suisse added that its SFr4.4bn cost-cutting programme remained on course, and Kinner Lakhani, an analyst at Citi, said that overall the results were positive.

“Credit Suisse is a cost savings and capital return story. We may need to be patient on cost savings at the private bank, but they ticked the box at the investment bank,” he said.

“On capital, we see the amount they return to shareholders increasing substantially over the next three years, part of the reason for recent share outperformance.”

Mr Dougan said that Credit Suisse was on target to exceed the Swiss core capital ratio requirement of 10 per cent by the end of the year and had begun to set money aside to pay a cash dividend.

On the slightly different Basel III requirements, Credit Suisse’s core tier one capital ratio stood at 8.6 per cent at the end of the quarter.